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Recommendations and Reports 

of the ADMINISTRATIVE 

CONFERENCE 
OF THE 
UNITED STATES 

JULY \, r974-DECEMBER 31, 1977 
VOLUME 




2(20 L Street, N.W., Suite 500 - Washington, D.C. 20037 



I' or sale by the Superintendent of Documents, U.S. Government Printing Office 

Wasliington, D.C. 20402 

Stock Number 052-019-00011-3 



PREFACE 



The Administrative Conference of the United States is a permanent, 
independent Federal agency established in 1964 by the Administrative 
Conference Act, 5 U.S.C. §§ 571-576, and activated in January 1968. It is 
the successor of two temporary Administrative Conferences, established 
by President Eisenhower in 1953 and by President Kennedy in 1961. Its 
mission is to monitor all aspects of the administrative process in all of the 
executive and independent agencies; to identify and analyze the causes of 
administrative inefficiency, delay and unfairness; to recommend to the 
agencies, the President, the Congress and the Judicial Conference of the 
United States specific means of improvement; and to furnish, on agency 
request, assistance and advice on matters of administrative procedure. 

The chief executive of the Conference is a full-time Chairman, ap- 
pointed by the President with Senate confirmation for a five-year term. 
Its Council consists of the Chairman and ten members appointed by the 
President for three-year terms, drawn from Federal agencies and from 
private life. The 91-member Assembly of the Conference consists of the 
Council, 44 high-level representatives designated by 36 major de- 
partments and agencies of the Federal Government, and 36 distinguished 
private citizens — practicing lawyers, academicians, state officials and 
others — who are specially knowledgeable in the field of administrative 
procedure. 

The Assembly conducts its business much like a legislative body, in 
Plenary Sessions that convene twice a year. The proposals to be consid- 
ered at these sessions are generally developed by standing committees, 
which use the personnel resources of the Chairman's office and ap- 
proximately 30 part-time consultants (mostly law professors) to conduct 
the detailed studies that form the basis of their reports. The functions of 
providing advice and assistance to the agencies, presenting Conference 
recommendations to the agencies and to Committees of the Congress, 
and seeking implementation of Conference proposals are the respon- 
sibilities of the Chairman, who has the assistance of a small, highly 
qualified staff, and the Conference's part-time consultants. 

This fourth volume of Recommendations and Reports of the Ad- 
ministrative Conference of the United States covers the period July 1, 
1974 through December 31, 1977. During this time five Plenary Sessions 
were held, at which the Conference adopted Recommendations 75-1 
through 77-3 and two formal Statements. 

The material contained in the first part of this volume consists of the 
operative instruments governing the structure and work of the Con- 
ference, a listing of its membership, and the recommendations and 
statements which it has adopted. The latter part of the volume, com- 
mencing at page 865, contains consultant and staff reports, which do not 

iii 



IV ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

have the formal endorsement of the full Conference but were the basis for 
recommendations adopted. Some of these have already been published in 
scholarly journals, and where that is the case the earlier publication has 
been produced by photo offset. A bibliography listing other major con- 
sultant and staff reports is included. Finally, this volume presents a 
composite Index to the published works of the Conference since its 
inception m 1968, and also provides indexes to the recommendations of 
the temporary Conferences of 1953 and 1961. 



CONTENTS 



Page 

The Administrative Conference Act 1 

Bylaws of the Administrative Conference, as 

Revised June 4, 1976 7 

Council Members il 

Staff of the Administrative Conference 11 

Members of the Conference 12 

Liaison Members of the Conference 14 

Former Members of the Council 15 

Former Conference Members With Positions at 

Time of Membership 16 

Former Liaison Members of the Conference 17 

Recommendations of the Administrative 

Conference of the United States 

Recommendation 75-1: Licensing Decisions of the Fed- 
eral Banking Agencies 19 

Recommendation 75-2: Affirmative Action in Faculty Em- 
ployment under Executive Or- 
der 11246 21 

Recommendation 75-3: The Choice of Forum for Judicial 

Review of Administrative 
Action 23 

Recommendation 75-4: Procedures to Insure CompUance 

by Federal Facilities with 
Environmental Quality 
Standards 28 

Recommendation 75-5: Internal Revenue Service Pro- 
cedures: The Audit and Settle- 
ment Processes 29 

Recommendation 75-6: Internal Revenue Service Pro- 
cedures: Collection of DeUn- 
quent Taxes 32 

Recommendation 75-7: Internal Revenue Service Pro- 
cedures: Civil Penalties 36 

Recommendation 75-8: Internal Revenue Service Pro- 

cedures: Tax Return 

Confidentiality 39 

Amendment to Recommendation 
75^: Tax Return 
Confidentiality 43 



VI 



ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 



Recommendation 75-9: Internal Revenue Service Pro- 
cedures: Taxpayer Services 
and Complaints 44 

Recommendation 75-10: Internal Revenue Service Pro- 
cedures: The IRS Summons 
Power 46 

Recommendation 76-1: Exception from Mandatory Re- 
tirement for Certain Presiden- 
tial Appointees 47 

Recommendation 76-2: Strengthening the Informational 

and Notice-Giving Functions of 
the Federal Register 48 

Recommendation 76-3: Procedures in Addition to Notice 

and the Opportunity for Com- 
ment in Informal Rulemak- 
ing 52 

Recommendation 76-4: Judicial Review Under the Clean 

Air Act and Federal Water 

Pollution Control Act 54 

Recommendation 76-5: Interpretive Rules of General 

Applicability and Statements of 

General Policy 62 

Recommendation 77-1: Legislative Veto of Administra- 
tive Regulations 63 

Recommendation 77-2: Judicial Review of Customs Serv- 
ice Actions 65 

Recommendation 77-3: Ex Parte Communications in In- 

formal Rulemaking 

Proceedings 72 

Statement on Strengthening Regulatory Agency 
Management Through Seminars for Agency 

Officials '75 

Statement on Procedures to Deal With Emergency 

Shortages of Natural Gas 77 

Consultant and Staff Reports in Support of 

Recommendations 75-1 Through 77-3 81 

75-1: Kenneth E. Scott. Licensing Decisions of the Federal 

Banking Agencies 83 

75-2: Jan Vetter. Affirmative Action in Faculty Employment 

under Executive Order 11246 147 

75-3: David P. Currie and Frank I. Goodman. The Choice of 
Forum for Judicial Review of Administrative 
Action 197 



CONTENTS VU 

75-4: William R. Shaw. Procedures to Insure Compliance by 
Federal Facilities with Environmental QuaUty 

Standards 283 

75-5 

to: Staff Summary of Charles Davenport Report. Adminis- 
75-10: trative Procedures of the Internal Revenue Service 317 
76-1: Harold H. Bruff. Exception from Mandatory Retire- 
ment for Certain Presidential Appointees 395 

76-2: Edward A. Tomlinson. Strengthening the Informa- 
tional and Notice-Giving Functions of the Federal 

Register 427 

76-3: Stephen F. Williams. Procedures in Addition to Notice 
and the Opportunity for Comment in Informal Rule- 
making 499 

76-4: David P. Currie. Judicial Review Under the Clean Air 

Act and Federal Water Pollution Control Act 555 

76-5: Michael Asimow. Interpretive Rules of General Ap- 
plicability and Statements of General Policy 615 

77-1: Ernest A. E. Gellhorn and Harold H. Bruff. Legisla- 
tive Veto of Administrative Regulations 679 

77-2: Peter M. Gerhart. Judicial Review of Customs Service 

Actions 751 

77-3: Nathaniel L. Nathanson. Ex Parte Communications in 

Informal Rulemaking Proceedings 841 

Committee Memorandum in Support of Conference 
Statement on Strengthening Regulatory Agency 
Management Through Seminars for Agency 

Officials 865 

Report in Support of Conference Statement in 
Procedures to Deal with Emergency Shortages of 

Natural Gas 871 

Bibliography of Selected Reports of the 

Administrative Conference 948 

Index to Recommendations, Statements, Reports and 
Studies of the Administrative Conference (January 

1968 Through December 1977) 949 

Index to Recommendations of the Administrative 

Conference of 1953 1007 

Index to Recommendations of the Administrative 

Conference of 1961 1008 

Index — Explanatory Foreword 951 

Index — Table of Abbreviations 953 

Index — Cross References 954 



THE ADMINISTRATIVE CONFERENCE ACT 

[Public Law 88-499, August 30, 1964, 78 Stat. 615, as codified by 
Public Law 89-554. September 6, 1966, 80 Stat. 388, as amended by 
Public Law 92-526 October 21, 1972, Title 5 U.S.C, Chapter 5, 
Subchapter III, Sections 571 through 576.1 



§ 571 Purpose. 

It is the purpose of this subchapter to provide suitable arrange- 
ments through whicli Federal agencies, assisted by outside experts, 
may cooperatively study mutual problems, exchange information, 
and develop recommendations for action by proper authorities to 
the end that private rights may be fully protected and regulatory 
activities and other Federal responsibilities may be carried out 
expeditiously in the public interest. 

§ 572 Definitions. 

For the purpose of this subchapter — 

(1) ''administrative program" includes a Federal function whicli 
involves protection of the public interest and the determination of 
rights, privileges, and obligations of private persons through rule- 
making, adjudication, licensing, or investigation, as tliose terms ai'e 
used in subchapter II of this chapter, except that it does not include 
a military or foreign affairs function of the United States; 

(2) "administrative agency" means an authority as defined by 
section 551(1) of this title; and 

(3) "administrative procedure" means procedure used in carrying 
out an administrative program and is to be broadly construed to 
include any aspect of agency organization, procedure, or uianagement 
which may affect the equitable consideration of public and private 
interests, the fairness of agency decisions, the speed of agency action, 
and the relationship of operating methods to later judicial review, but 
does not include the scope of agency responsibility as established by 
law or matters of substantive policy committed by law to agency 
discretion. 



2 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

§ 573 Administrative Conference of the United States. 

(a) The Administrative Conference of the United States consists of 
not more than 91 nor less than 75 members appointed as set forth in 
subsection (b) of this section. 

(b) The Conference is composed of — 

(1) a full-time Chairman appointed for a 5-year term by the Presi- 
dent, by and with the advice and consent of the Senate. The Chairman 
is entitled to pay at the highest rate established by statute for the 
chairman of an independent regulatory board or commission, and may 
continue to serve until his successor is appointed and has qualified; 

(2) the chairman of each independent regulatory board or commis- 
sion or an individual designated by the board or commission ; 

(3) the head of each Executive department or other administrative 
agency which is designated by the President, or an individual desig- 
nated by the head of the department or agency ; 

(4) when authorized by the Council referred to in section 575 (b) of 
this title, one or more appointees from a board, commission, depart- 
ment, or agency referred to in this subsection, designated by the 
head thereof Avith, in the case of a board or commission, the approval 
of the board or commission ; 

(5) individuals appointed by the President to membership on the 
Council who are not otherwise members of the- Conference ; and 

(6) not more than 36 other members appointed by the Chairman, 
with the approval of the Council, for terms of 2 years, except that the 
number of members appointed by the Chairman may at no time be 
less than one-third nor more than two-fifths of the total number of 
members. The Chairman shall select the members in a manner which 
will provide broad representation of the views of private citizens and 
utilize diverse experience. The members shall be members of the 
practicing bar, scholars in the field of administrative law or govern- 
ment, or others specially informed by knowledge and experience with 
respect to Federal administrative procedure. 

(c) Members of the Conference, except the Chairman, are not 
entitled to pay for service. Members appointed from outside the 
Federal Government are entitled to travel expenses, including per 
diem instead of subsistence, as authorized by section 5703 of this 
title for individuals serving without pay. 

§ 574 Powers and duties of the Conference. 

To carry out the purpose of this subchapter, the Administrative 
Conference of the United States may — 

(1) study the efficiency, adequacy, and fairness of the administra- 
tive procedure used by administrative agencies in carrying out 
administrative programs, and make recommendations to administra- 



THE ADMINISTRATIVE CONFERENCE ACT O 

tive agencies, collectively or individually, and to the President, 
Congress, or the Judicial Conference of the United States, in con- 
nection therewith, as it considers appropriate ; 

(2) arrange for interchange among administrative agencies of 
information potentially useful in improving administrative procedure ; 
and 

(3) collect information and statistics from administrative agencies 
and publish such reports as it considers useful for evaluating and 
improving administrative procedure, 

§ 575 Organization of the Conference. 

(a) The membership of the Administrative Conference of the 
United States meeting in plenary session constitutes the Assembly 
of the Conference. The Assembly has ultimate authority over all 
activities of the Conference. Specifically, it has the power to — 

(1) adopt such recommendations as it considers appropriate for 
improving administrative procedure. A member who disagrees with a 
recommendation adopted by the Assembly is entitled to enter a dis- 
senting opinion and an alternate proposal in the record of the Confer- 
ence proceedings, and the opinion and proposals so entered shall ac- 
company the Conference recommendation in a publication or dis- 
tribution thereof ; and, 

(2) adopt bylaws and regulations not inconsistent with this sub- 
chapter for carrying out the functions of the Conference, including the 
creation of such committees as it considers necessary for the conduct 
of studies and the development of recommendations for consideration 
by the Assembly. 

(b) The Conference includes a Council composed of the Chair- 
man of the Conference, who is Chairman of the Council, and 10 
other members appointed by the President, of whom not more than 
one-half shall be employees of Federal regulatory agencies or Execu- 
tive departments. The President may designate a member of the Coun- 
cil as Vice Chairman. During the absence or incapacity of the Chair- 
man, or when that office is vacant, the Vice Chairman shall serve as 
Chairman. The term of each member, except the Chairman, is 3 years. 
When the term of a member ends, he may continue to serve until a 
successor is appointed. However, the service of any member ends when 
a change in his employment status would make him ineligible for 
Council membership under the conditions of his original appointment. 
The Council has the power to — 

(1) determine the time and place of plenary sessions of the Con- 
ference and the agenda for the sessions. The Council shall call at 
least one plenary session each year ; 



4 ADMINISTRATIVE C0.\FP:RENCE OF THE UNITED STATES 

(2) propose bylaws and regulations, including rules of procedure and 
committee organization, for adoption by the Assembly ; 

(3) make recommendations to the Conference or its committees 
on a subject germane to the purpose of the Conference ; 

(4) receive and consider reports and recommendations of commit- 
tees of the Conference and send them to members of the Conference 
with the views and recommendations of the Council ; 

(5) designate a member of the Council to preside at meetings of the 
Council in the absence or incapacity of the Chairman and Vice 
Chairman ; 

(6) designate such additional officers of the Conference as it con- 
siders desirable ; 

(7) approve or revise the budgetary proposals of the Chairman; 
and 

(8) exercise such other powers as may be delegated to it by the 
Assembly. 

(c) The Chairman is the chief executive of the Conference. In that 
capacity he has the power to — 

(1) make inquiries into matters he considers important for Con- 
ference consideration, including matters proposed by individuals 
inside or outside the Federal Government ; 

(2) be the official spokesman for the Conference in relations with 
the several branches and agencies of the Federal Government and 
with interested organizations and individuals outside the Govern- 
ment, including responsibility for encouraging Federal agencies to 
carry out the recommendations of the Conference ; 

(3) request agency heads to provide information needed by the 
Conference, which information shall be supplied to the extent per- 
mitted by law ; 

(4) recommend to the Council appropriate subjects for action by 
the Conference; 

(5) appoint, with the approval of the Council, members of com- 
mittees authorized by the bylaws and regulations of the Conference; 

(6) prepare, for approval of the Council, estimates of the budgetary 
requirements of the Conference ; 

(7) appoint and fix the pay of employees, define their duties and 
responsibilities, and direct and supervise their activities ; 

( 8 ) rent office space in the District of Columbia ; 

(9) provide necessary services for the Assembly, the Council, and 
the committees of the Conference ; 

(10) organize and direct studies ordered by the Assembly or the 
Council, to contract for the performance of such studies with any 
public or private persons, firm, association, corporation, or institution 
under title III of the Federal Property and Administrative Services 
Act of 1949, as amended (41 U.S.C. 251-260), and to use from time 



THE ADMINISTRATIVE CONFERENCE ACT O 

to time, as appropriate, experts and consultants who may be employed 
in accordance with section 3109 of this title at rates not in excess of 
the maximum rate of pay for grade GS-15 as provided in section 5332 
of this title ; 

(11) utilize, with their consent, the services and facilities of Federal 
agencies and of State and private agencies and instrumentalities with 
or without reimbursement ; 

(12) accept, hold, administer, and utilize gifts, devises, and bequests 
of property, both real and personal, for the purpose of aiding and 
facilitating the work of the Conference. Gifts and bequests of money 
and proceeds from sales of other property received as gifts, devises, or 
bequests shall be deposited in the Treasury and shall be disbursed 
upon the order of the Chairman. Property accepted pursuant to this 
section, and the proceeds thereof, shall be used as nearly as possible 
in accordance with the terms of the gifts, devises, or bequests. For 
purposes of Federal income, estate, or gift taxes property accepted 
under this section shall be considered as a gift, devise, or bequest to 
the United States ; 

(13) accept voluntary and uncompensated services, notwithstand- 
ing the provisions of section 3679(b) of the Revised Statutes (31 
U.S.C. 660(b)); 

(14) on request of the head of an agency, furnish assistance and 
advice on matters of administrative procedures ; and 

(15) exercise such additional authority as the Council or Assembly 
delegates to him. 

The Chairman shall preside at meetings of the Council and at each 
plenary session of the Conference, to which he shall make a full report 
concerning the affairs of the Conference since the last preceding 
plenary session. The Chairman, on behalf of the Conference, shall 
transmit to the President and Congress an annual report and such 
interim reports as he considers desirable. 

§ 576 Appropriations. 

There are authorized to be appropriated sums necessary not in 
excess of $760,000 for the fiscal year ending June 30, 1974, $805,000 
for the fiscal year ending June 30, 1975, $850,000 for the fiscal year 
ending June 30, 1976, $900,000 for the fiscal year ending June 30, 1977, 
and $950,000 for the fiscal year ending June 30, 1978, and for each 
fiscal year thereafter, to carry out the purposes of this subchapter. 



I 



BYLAWS OF THE ADMINISTRATIVE CONFERENCE 

(As revised June 4, 1976) 

Section 1. Establishment and Objective 

The Administrative Conference Act, 5 U.S.C. §§ 561 et seq. (1970), 
78 Stat. 615 (1964), authorized the establishment of the Administra- 
tive Conference of the United States as a permanent, independent 
agency of the Federal Government. The purpose of the Administra- 
tive Conference is to improve the administrative procedure of Federal 
agencies to the end that they may fairly and expeditiously carry out 
their responsibilities to protect private rights and the public interest. 
The Administrative Conference Act provides for the membership, 
organization, powers, and duties of the Conference. 

Section 2. Membership 
(a) general 

Each member is expected to participate in all respects according to 
his own views and not necessarily as a repesentative of any agency or 
other group or organization, public or private. Each member (other 
than a member of the Council) shall be appointed to one of the stand- 
ing committees of the Conference. 

(B) TERMS OF NONGOVERNMENT MEMBERS 

The terms of non-Government members, who are appointed by the 
Chairman with the approval of the Council, shall terminate at 2-year 
intervals from June 30, 1970. No more than 10 percent of such mem- 
bers shall at any time be in continuous service beyond a third term. 

(C) ELIGIBILITY AND REPLACEMENTS 

(1) A member designated by a Federal agency shall become in- 
eligible to continue as a member of the Conference in that capacity or 
under that designation if he leaves the service of the agency or de- 
partment. Designations and redesignations of members shall be filed 
with the Chairman promptly. 



8 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

(2) A person appointed as a non-Government member shall be- 
come ineligible to continue in that capacity if he enters full-time Gov- 
ernment service. In the event a non-Government member of the Con- 
ference resigns or becomes ineligible to continue as a member, the 
appointing authority shall appoint a successor for the remainder of 
the term. 

(D) ALTERNATES 

Members may not act through alternates at plenary sessions of the 
Conference, "Where circumstances justify, an alternate may be per- 
mitted, with the approval of a committee, to participate for a mem- 
ber in a meeting of the committee, but such alternate shall not have 
the privilege of a vote in respect to any action of the committee. 

Section 3. Commitiees 

The following shall constitute the standing committees of the 
Conference : 

1. Committee on Agency Decisional Processes; 

2. Committee on Agency Organization and Personnel ; 

3. Committee on Compliance and Enforcement Proceedings ; 

4. Committee on Grants, Benefits and Contracts ; 

5. Committee on Informal Action ; 

6. Committee on Judicial Review ; 

7. Committee on Licenses and Authorizations ; 

8. Committee on Ratemaking and Economic Regulation ; and 

9. Committee on Rulemaking and Public Information. 

The activities of the committees shall not be limited to the areas 
described in their titles, and the Chairman may redefine the respon- 
sibilities of the committees and assign new or additional projects to 
them. With the approval of the Council, the Chairman may establish 
special ad hoc committees and assign special projects to such commit- 
tees. The Chairman shall coordinate the activities of all committees to 
avoid duplication of effort and conflict in their activities. 

Section 4. Liaison Arrangements 

The Chairman, with the approval of the Council, may make liaison 
arrangements with representatives of the Congress, the judiciary. 
Federal agencies, and professional associations which are not repre- 
sented on the Conference. Persons appointed under these arrange- 
ments may participate in the activities of a designated committee 
without vote ; and may participate in the deliberations of the Confer- 
ence with privileges of the floor, but without vote. 



BYLAWS y 

Section 5. General 

(a) meetings 

All sessions of the Assembly shall be public. Privileges of the floor, 
however, extend only to: (1) Members of the Conference, (2) persons 
appointed pursuant to section 4, (3) consultants and staff members 
insofar as matters on which they have been engaged are under con- 
sideration, and (4) persons who, prior to the commencement of the 
meeting, have obtained the approval of the Chairman and who speak 
with the unanimous consent of the Assembly. 

(B) QUORUMS 

A majority of the members of the Conference shall constitute a 
quorum of the Assembly; a majority of the Council shall constitute 
a quorum of the Council. 

(C) SEPARATE STATEMENTS 

(1) A member who disagrees in whole or in part with a recom- 
mendation adopted by the Assembly is entitled to enter a separate 
statement in the record of the Conference proceedings and to have it 
set forth with the official publication of the recommendation in the 
Federal Register. A member's failure to file or join in such a separate 
statement does not necessarily indicate his agreement with the 
recommendation. 

(2) Notification of intention to fiLj a separate statement must be 
given to the Executive Secretary not later than the last day of the 
plenary session at which the recommendation is adopted. Members 
may, without giving such notification, join in a separate statement for' 
which proper notification has been given. 

(3) Separate statements must be filed within 10 days after the close 
of the session, but the Chairman may extend this deadline for good 
cause. 

(D) AMENDMENT OF BYLAWS 

The Conference may amend the bylaws provided that 30 days' no- 
tice of the proposed amendment shall be given to all members of the 
Assembly by the Chairman. 

(E) PROCEDURE 

Robert's Rules of Order shall govern the proceedings of the Assem- 
bly to the extent appropriate. 



COUNCIL MEMBERS 
(January 1, 1978) 

ROBERT A. ANTHONY 

Chairman •«• 

Walter Gellhorn, Professor of Law, Columbia University School of 

Law, New York, N.Y. 
Marion Edwyn Harrison, lawyer, Washington, D.C. 
Betty Southard Murphy, Member, National Labor Relations 

Board 
Edward C. Schmults, lawyer. New York, N.Y. 
Richard C. Van Dusen, lawyer, Detroit, Michigan 
Edwin M. Zimmerman, lawyer, Washington, D.C. 



STAFF OF THE ADMINISTRATIVE CONFERENCE 
(January 1, 1978) 



Richard K. Berg 
Executive Secretary 



David M. Pritzker 

Staff Attorney 



Joseph B. Scott 

Executive Director 



Stephen H. Klitzman 

Staff Attorney 



David B. H. Martin 
Research Director 



Katherine Klein 

Administrative Assistant 



Jeffrey S. Lubbers 

Staff Attorney 



Norma B. Smith 
Administrative Officer 



Sue J. Boley 

Librarian and Information 
Officer 



11 



MEMBERS OF THE CONFERENCE 

(January 1, 1978) 



William H. Allen, lawyer, Washington, D.C. 

Robert C. Bamford, Chief Administrative Law Judge, Interstate Commerce Com- 
mission 
Joan Z. Bernstein, General Counsel, Environmental Protection Agency 
Peter A. Bradford, Commissioner, Nuclear Regulatory Commission 
John A. Buggs, Staff Director, U.S. Commission on Civil Rights 
Clark Byse, Professor of Law, Harvard Law School, Cambridge, Massachusetts 
Harold M. Carter, Assistant General Counsel, Department of Agriculture 
Betty Jo Christian, Commissioner, Interstate Commerce Commission 
Carin a. Clauss, Solicitor of Labor, U.S. Department of Labor 
Timothy F. Cleary, Chairman, Occupational Safety and Health Review Commission 
Sheldon S. Cohen, lawyer, Washington, D.C. 

John H. Conlin, Administrative Law Judge, Federal Communications Commission 
Jerome A. Cooper, lawyer, Birmingham, Alabama 
Richard M. Cooper, Chief Counsel, Food and Drug Administration, Department of 

Health, Education, and Welfare 
Louis A. Cox, General Counsel, United States Postal Service 
Charles B. Curtis, Chairman, Federal Energy Regulatory Commission 
Kenneth Culp Davis, Professor of Law, University of San Diego School of Law 
Thomas M. Debevoise, Dean, Vermont Law School, South Royalton, Vermont 
Ronald M. Dietrich, Vice President, Consolidated Rail Corporation, Philadelphia, 

Pennsylvania 
Robert G. Dixon, Jr., Professor of Law, Washington University School of Law, St. 

Louis, Missouri 
Harry T. Edwards, Professor of Law, University of Michigan Law School, Ann Arbor, 

Michigan 
Frederick N. Ferguson, Deputy Solicitor, Department of the Interior 
Betty B. Fletcher, lawyer, Seattle, Washington 
James F. FluG, Energy Action Committee, Washington, D.C. 
Ronald B. Frankum, lawyer, Del Mar, California 
Herschel H. Friday, lawyer. Little Rock, Arkansas 

Theodore J. Garrish, General Counsel, Consumer Product Safety Commission 
William T. Gennetti, General Counsel, Small Business Administration 
Robert L. Gilliat, Assistant General Counsel, Department of Defense 
Jack Greenberg, Director-Counsel, NAACP Legal Defense Fund, New York, New 

York 
Richard L. Griffith, lawyer, Honolulu, Hawaii 
Wolf Haber, Assistant General Counsel, Department of the Treasury 
John M. Harmon, Assistant Attorney General, Office of Legal Counsel, Department of 

Justice 
Thomas E. Harris, Chairman, Federal Election Commission 

Lawrence W. Hayes, Assistant General Counsel, Federal Home Loan Bank Board 
Geoffrey C. Hazard, Jr., Professor of Law, Yale Law School, New Haven, Connec- 
ticut 
S. Neil Hosenball, General Counsel, National Aeronautics & Space Administration 
Howard Jenkins, Jr., Member, National Labor Relations Board 
Rhoda H. Karpatkin, Executive Director, Consumers Union, Mt. Vernon, New York 
Linda Heller Kamm, General Counsel, Department of Transportation 
Cornelius B. Kennedy, lawyer, Washington, D.C. 



12 



MEMBERS 13 

Victor H. Kramer, Professor of Law, Georgetown University Law Center, Washing- 
ton, D.C. 
Allie B. Latimer, General Counsel, General Services Administration 
Philip A. LOOMIS, Jr., Commissioner, Securities and Exchange Commission 
K. E. Malmborg, Assistant Legal Advisor, Department of State 
Malcolm S. Mason, Chairman, Departmental Grant Appeals Board, Department of 

Health, Education and Welfare 
Turner H. McBaine, lawyer, San Francisco, California 
Guy H. McMichael IH, General Counsel, Veterans Administration 
Alfred Meisner, Assistant General Counsel, Department of Commerce 
Ira M. Millstein, lawyer. New York, New York 
Anthony L. Mondello, lawyer, Bethesda, Maryland 

Clarence Morse, Commissioner-Vice Chairman, Federal Maritime Commission 
Cantwell F. MuCKENFUSS in. Counsel to the Chairman, Federal Deposit Insurance 

Corporation 
William M. Nichols, General Counsel, Office of Management and Budget 
Eleanor Holmes Norton, Chair, Equal Employment Opportunity Commission 
Thomas J. O'Connell, Counsel to the Chairman, Board of Governors Federal Reserve 

System 
Owen Olpin, lawyer, Los Angeles, California 
Clark H. Onstad, Chief Counsel, Federal Aviation Administration 
John W. Pettit, lawyer, Washington, D.C. 
Richard W. POGUE, lawyer, Cleveland, Ohio 

Ruth T. Prokop, General Counsel, Department of Housing and Urban Development 
John V. Rainbolt II, Commissioner, Commodity Futures Trading Commission 
Katherine E. Sasseville, Commissioner, Minnesota Public Service Commission, St. 

Paul, Minnesota 
Stuart E. Seigel, Chief Counsel, Internal Revenue Service 

J. Clay Smith, Jr., Associate General Counsel, Federal Communications Commission 
Otis M. Smith, Vice President & General Counsel, General Motors Corporation, Detroit, 

Michigan 
Michael N. Sohn, General Counsel, Federal Trade Commission 
H. Patrick Swygert, General Counsel, U.S. Civil Service Commission 
Robert Thomas Thompson, lawyer, Greenville, South Carolina 
Penelope H. Thunberg, economist, Washington, D.C. 
Robert L. Trachtenberg, Director, Bureau of Hearings & Appeals, Social Security 

Administration 
Harry H. Voigt, laywer, Washington, D.C. 
James E. Wesner, lawyer, Washington, D.C. 
Lee R. West, Member, Civil Aeronautics Board 

Jerre S. Williams, Professor of Law, University of Texas Law School, Austin 
Frank M. Wozencraft, lawyer, Houston, Texas 
Robert H. Young, lawyer, Philadelphia, Pennsylvania 



LIAISON MEMBERS OF THE CONFERENCE 
January 1, 1978 



Paul G. Dembling, General Counsel, U.S. General Accounting Office 

Clyde S. Du Pont, Chairman, Postal Rate Commission 

Fred J. Emery, Director, Office of the Federal Register 

Alice L. O'Donnell, Director of Inter-Judicial Affairs, The Federal 

Judicial Center 
Harold Leventhal, Judge, United States Court of Appeals 
Joseph F. Spaniol, Jr. , Deputy Director, Administrative Office of the 

United States Courts 
Henry N. Williams, General Counsel, Selective Service System 



14 



FORMER MEMBERS OF THE COUNCIL 

(July 1, 1974-December 31, 1977) 

Position at time of Membership 



John W. Barnum, Deputy Secretary, Department of Transportation 

PmLIP W. BUCHEN, Counsel to the President 

Robert G. Dixon, Jr. , Assistant Attorney General, Department of Justice 

Lewis A. Engman, Chairman, Federal Trade Commission 

Leonard Garment, Counsel to the President 

Carla a. Hills, Secretary, Department of Housing and Urban Development 

Harold L. Russell, lawyer, Atlanta, Georgia 

Richard B. Smith, lawyer. New York, New York 

Harold R. Tyler, Jr., Deputy Attorney General, Department of Justice 

Richard E. Wiley, Chairman, Federal Communications Commission 



15 



FORMER CONFERENCE MEMBERS WITH POSITIONS AT 
TIME OF MEMBERSHIP 

(July 1, 1974— December 31, 1977) 



Robert F. Adams, lawyer, Mobile, Alabama 

Charles E. Allen, General Counsel, Federal Home Loan Bank Board 
Richard S. Arnold, lawyer, Texarkana, Arkansas 
H. Gregory Austin, General Counsel, Small Business Administration 
Frank R. Barnako, Chairman, Occupational Safety and Health Review Commission 
Frank A. Bartimo, Assistant General Counsel, Department of Defense 
Michael A. Brown, General Counsel, Consumer Product Safety Commission 
Tyrone Brown, lawyer, Washington, D.C. 

Michael F. Butler, General Counsel, Federal Energy Administration 
Donald A. Campbell, Judicial Officer, Department of Agriculture 
Charles L. ClaPP, Commissioner, Interstate Commerce Commission 
Manuel Cohen, lawyer, Washington, D.C. 
Calvin J. Collier, General Counsel, Federal Trade Commission 
H. Dale Cook, Director, Bureau of Hearings and Appeals, Social Security Administra- 
tion 
John J. Corcoran, General Counsel, Veterans Administration 
William 0. Doub, Commissioner, Atomic Energy' Commission 
Bernard Dunau, lawyer, Washington, D.C. 

Stanley Ebner, General Counsel, Office of Management and Budget 
Robert Elliott, General Counsel, Department of Housing and Urban Development 
John Hart Ely, General Counsel, Department of Transportation 
Rodney E. Eyster, General Counsel, Department of Transportation 
John H. Fanning, Member, National Labor Relations Board 
Ben C. Fisher, lawyer, Washington, D.C. 

G. William Frick, General Counsel, Environmental Protection Agency 
Warner W. Gardner, lawyer, Washington, D.C. 
Hugh C. G.\RNER, Deputy Solicitor, Department of the Interior 
Whitney Gillilland, Commissioner, Civil Aeronautics Board 
Bert Z. Goodwin, Chief Counsel, Federal Aviation Administration 
Carl F. Goodman, General Counsel, U.S. Civil Service Commission 
Daniel T. HaNSCOM, Chief, Office of Administrative Law Judges, Federal Trade 

Commission 
ASHTON Hardy, General Counsel, Federal Communications Commission 
Werner K. Hartenberger, General Counsel, Federal Communications Commission 
George H. Hearn, Commissioner, Federal Maritime Commission 
RaGAN a. Henry, lawyer, Philadelphia, Pennsylvania 
John H. HOLLOMAN III, Commissioner, Federal Power Commission 
Peter B. Hutt, Chief Counsel, Food and Drug Administration 
Samuel C. Jackson, lawyer, Washington, D.C. 
James D. Keast, General Counsel, Department of Agriculture 
William J. Kilberg, Solicitor of Labor, U.S. Department of Labor 
Earl W. Kintner, lawyer, Washington, D.C. 
John A. Knebel, General Counsel, Department of Agriculture 
David M. F. Lambert, General Counsel, Small Business Administration 
Rex E. Lee, Assistant Attorney General, Department of Justice 
George A. Lemaistre, Director, Federal Deposit Insurance Corporation 
Robert J. Lewis, General Counsel, Federal Trade Commission 
Sol Lindenbaum, Executive Assistant to the Attorney General, Department of Justice 

16 



MEMBERS 17 

David E. Lindgren, Deputy Solicitor, Department of the Interior 

Richard A. Merrill, Chief Counsel, Food and Drug Administration, Department of 

Health, Education and Welfare 
Robert E. Montgomery, Jr., (General Counsel, Federal Energy Administration 
Robert D. Moran, Chairman, Occupational Safety and Health Review Commission 
John N. Nassikas, Chairman, Federal Power Commission 
William A. Nelson, Vice President-General Counsel, National Airlines, Inc. 
Constance B. Newman, Commissioner, Consumer Product Safety Commission 
Leonard Niederlehner, Deputy General Counsel, Department of Defense 
Gerald P. Norton, General Counsel, Federal Trade Commission 
Max D. Paglin, Permanent Member, Atomic Safety and Licensing Board, Nuclear 

Regulatory Commission 
Lowell W. Perry, Chairman, Equal Employment Opportunity Commission 
Ersa Hines Poston, Commissioner, New York State Department of Civil Service 
John H. Powell, Jr. , Equal Employment Opportunity Commission 
Martin F. Richman, lawyer, New York, New York 
Raul N. Rodriguez, Executive Director, Department of Regulatory Agencies, State of 

Colorado 
Marcus ROWDEN, Commissioner, Nuclear Regulatory Commission 
Peter L. Strauss, General Counsel, Nuclear Regulatory Commission 
Harold S. Trimmer, General Counsel, General Services Administration 
Peter F. Tufo, lawyer. New York, New York 
Gerald J. Turner, Chief Counsel, Federal Aviation Administration 
John P. Vukasin, Jr., Judge, Superior Court, State of California, Oakland, California 
Charles A. Webb, President, National Association of Motor Bus Owners, Washington, 

D.C. 
Meade Whitaker, Chief Counsel, Internal Revenue Service 
Donald P. Young, General Counsel, General Services Administration 
Robert V. Zener, Deputy General Counsel, Environmental Protection Agency 
Joseph Zwerdling, Chief Administrative Law Judge, Federal Power Commission 



FORMER LIAISON MEMBERS OF THE CONFERENCE 

Position at Time of Membership 



William E. Foley, Deputy Director, Administrative Office of the 
United States Courts 

R. Tenney Johnson, General Counsel, Energy Research and De- 
velopment Administration 

Seymour Wenner, Administrative Law Judge, Postal Rate Com- 
mission 

James A. Wilderotter, General Counsel, Energy Research and 
Development Administration 



RECOMMENDATIONS OF THE ADMINISTRATIVE 
CONFERENCE OF THE UNITED STATES 

(July 1, 1974 to December 31, 1977) 



TEXTS OF ASSEMBLY ACTIONS 

Recommendation 75-1 

licensing decisions of the federal banking agencies 

(Adopted June 5-6, 1975) 

Entry into banking is controlled on the Federal level by four 
agencies: the Comptroller of the Currency (for charters and branches 
of national banks), the Federal Home Loan Bank Board (for charters 
and branches of Federal savings and loan associations, and via the 
Federal Savings and Loan Insurance Corporation for account insur- 
ance for State-chartered savings and loan associations), the Board of 
Governors of the Federal Reserve System (for FRS membership and 
accompanying FDIC deposit insurance for State-chartered banks, 
and for branches of State member banks), and the Federal Deposit 
Insurance Corporation (for deposit insurance for State banks that are 
not FRS members, and for branches of such banks). 

The statutes which confer these powers of approval over entry into 
banking and banking markets contain sketchy standards, or none at 
all, defining how the administrative authorities should exercise their 
judgment. The statutory void has not as yet been filled by the agencies 
themselves; none of them has adopted comprehensive statements of 
policy or meaningful rules of general applicability, though recently the 
Federal Reserve and FDIC have taken steps in this direction. 

In acting upon such applications, the agencies usually do not hold 
hearings or issue reasoned opinions. As a consequence, little authori- 
tative information is available concerning the policies the agencies 
follow in exercising their broad powers over entry into banking markets 
and in granting valuable authorizations to some applicants and 
denying them to others. 

Increasingly, within the last two decades, these decisions — particu- 
larly those of the Comptroller — have been subjected to judicial 
review. The absence of adequate explanatory opinions by the agency 
has impeded review that is both meaningful and limited. Reviewing 
courts have too often been forced to choose between pro forma valida- 
tion of agency action or substitution of the court's judgment for that 
of the agency. 

This recommendation, addressed to the agencies, is directed at the 
point of greatest initial need: the provision of explanation of policies 

19 



20 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

and decisions. That can be accomplished in a variety of ways, and the 
recommendation distinguishes between different agency roles and 
types of decision, in a manner intended to avoid unnecessary demands 
upon agency resources. Moreover, the Freedom of Information Act 
(5 U.S.C. § 552) requires agencies to make available to the general 
public whatever statements of agency policy and opinions in individual 
cases they have prepared. This recommendation is in furtherance of 
those statutory objectives. 

Applications are sometimes, though not often, rejected on grounds 
that the agency believes would be substantially injurious to a bank 
or individual if made public. This possibility is not a justification for 
a general policy of nonexplanation ; it should not be automatically 
applied to shield all negative information. Occasionally, nevertheless, 
the agency may believe that it would be warranted in not disclosing 
certain information. If the information pertains to the applicant bank 
or group, the applicant could be afforded the option of withdrawing 
its request; if it pertains to an objecting bank, the ground could be 
stated m general terms, such as "to prevent an adverse impact on 
other institutions." The extent to which supportmg evidence should 
be revealed m camera or by some other confidential method, if judicial 
review were subsequently sought, is left to be decided under existing 
law and is outside the scope of this recommendation. 

The present recommendation has limited reach. It is not intended 
to express either approval or disapproval of the present system of 
entry controls in banking, nor is it addressed to the extent of statutory 
discretion possessed by the Federal banking agencies in their licensing 
decisions, which is exceptionally broad and would remain so if this 
recommendation were fully accepted. What is now proposed is, simply, 
that when this broad discretion is exercised, the agencies should articu- 
late their decisional standards and underlying policy objectives in a 
way that would facilitate understanding and evaluation on the merits. 

Recommendation 

1. General. The Federal banking agencies should undertake to 
provide a full statement of their objectives in approving or denying 
applications for charters, membership, or permission lo establish 
branches, and should define in concrete terms the standards to be 
applied. This can be done best by the adoption of policy statements and 
rules of general applicabilityi which should be as specific as possible. 
To provide additional clarity and understanding, reasoned opinions 
should be issued in situations described below. 

2. Chartering authority decisions: Comptroller and Federal Home 
Loan Bank Board. Charter decisions are of high importance and rel- 
atively low in number. An explanatory opinion should be furnished 
as a matter of course in all charter denials, since this is the most critical 



OFFICIAL RECOMMENDATIONS 21 

entry barrier; when requested, explanation of favorable action upon 
an application should be provided to any objecting party or to any 
interested Federal agency. 

In the case of branch applications, the numbers are large and many 
approvals seem a matter of routine. Probably only a small minority of 
approvals, but a much larger fraction of denials, would occasion a desire 
or need for explanation. For branches, therefore, the comptroller and 
FHLBB should furnish written opinions when the agency believes 
the case presents issues of general importance, or when requested by 
an applicant, an objecting party or an interested Federal agency. 

3. Secondary supervisor decisions: Federal Reserve Board, Federal 
Deposit Insurance Corporation, and Federal Savings and Loan In- 
surance Corporation. Branch approvals by the FRB and FDIC seem 
well nigh automatic, no doubt because of reliance on the primary 
approval of other authorities, and an opinion requirement in all cases 
would be excessive. For branches, therefore, the FRB and FDIC 
should also furnish written opinions when requested or when the 
agency believes the case presents issues of general importance. 

Membership applications may not fall wholly into the same cate- 
gory, though only the FSLIC has a significant rejection ratio. Written 
opinions should be furnished on request, which would presumably be 
made infrequently by others than disappointed applicants. 

4. Publication. All four agencies should systematically collect and 
publish their licensing opinions in some convenient form. Depending 
on frequency and length, those of general importance might be in- 
cluded as part of monthly publications such as the Federal Reserve 
Bulletin or Federal Home Loan Bank Board Journal, or as an appendix 
to annual reports; others might be published as a separate series and 
made available in public files at the agency's Washington and field 
offices. 

Recommendation 75-2 

affirmative action for equal opportunity in nonconstruction 

employment 

(Adopted June 5-6, 1975) 

Executive Order 11246, which concerns equal employment oppor- 
tunity, applies to all contractors with the Federal Government. 
Pursuant to this Executive order, the Department of Labor has 
promulgated one set of regulations prohibiting discrimination and 
requiring affirmative action to govern contractors in the construction 
industry, and another set of such regulations to govern all other 
contractors. 

A study of the application of the nonconstruction regulations to 
university faculty employment practices illustrates that the use of a 



22 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

single set of regulations for all nonconstruction employment can fail 
to take adequate account of important special circumstances of major 
employment categories. With respect to university faculty employ- 
ment, for example, the regulations as applied have generated diffi- 
culties arising from failure to take account of the limited supply of 
qualified personnel in various disciplines, the nonquantifiability of 
standards for academic personnel, the diversity of institutional 
needs fulfilled by academic personnel {e.g., research, teaching, public 
service), different types of institutions {e.g., research universities, 
community colleges), and the concept of peer review in academic em- 
ployment practices. It seems evident that difficulties of the sorts 
experienced in the application of the nonconstruction regulations to 
academic employment in higher education will be encountered in 
their application to other employment categories as well. 

The study further suggests that contract cancellation is in many 
cases too severe or impracticable as the primary sanction for non- 
compliance with equal employment opportunity regulations; in 
practice, cancellation is rarely used. The more common sanction, 
as in the field of higher education employment, is the declaration of 
nonresponsibility of an employer. Unlike the procedures leading to 
other sanctions, such as debarment of a contractor or cancellation 
of a contract, no opportunity for prior hearing is afforded in connection 
with a declaration of nonresponsibility. The provision of an oppor- 
tunity for hearing before imposition of any sanction under the contract 
compliance program will tend to assure the fairness and reliability 
of administrative determinations and to encourage responsible and 
consistent application of policy. 

Recommendation 

1. The Department of Labor, in consultation with the compliance 
agencies, should promptly commence a review of the contract compli- 
ance program applicable to nonconstruction contractors to determine 
whether regulations more closely adapted to the characteristics of 
specific occupations or industries are required, considering especially : 
(1) variations in the susceptibility of types of employment to uniform 
or quantifiable methods of evaluating and predicting performance; 
and (2) variations in policies of recruitment and advancement and in 
other personnel practices. 

2. The Department of Labor should develop a system of graduated 
sanctions for breach of the obligation contained in the equal employ- 
ment opportunity clause of Government contracts, and should seek 
legislation to this end as may be necessary.^ 



> In this connection the Department should consider Conference Recommendation 71-9: "Enforcement of 
Standards in Federal Orant-ln-Aid Programs," and Recommendation 72-6: "Civil Money Penalties as a 
Sanction." 



OFFICIAL RECOMMENDATIONS 23 

3. A sanction, including that of declaration of nonresponsibility on 
equal employment opportunity grounds made prior to the award of a 
contract, should not be imposed except after opportunity for a hearing 
(whether evidentiary or informal) at which the validity of the claim of 
breach, or assertion of nonresponsibility, and the appropriateness of 
the proposed sanction may be placed in issue. 

4. In performing its responsibilities for contract compliance in 
higher education the Department of Health, Education, and Welfare 
should: (a) provide regional office staffs with uniform and clearly 
defined policies, (6) recruit and assign staff who are familiar with 
institutions of higher education for administration of the program in 
higher education, (c) consult widely with representatives of higher 
education institutions and other interested groups in developing and 
administering its compliance rules and policies, and (d) strengthen 
coordination of its administration of regulations applicable to higher 
education with other agencies having overlapping responsibilities, in 
particular the Equal Employment Opportunity Commission and the 
Wage and Hour Administration of the Department of Labor. 

Recommendation 75-3 
the choice of forum for judicial review of administrative 

ACTION 

(Adopted June 5-6, 1975) 

This recommendation states criteria for use by the Congress in 
determining the appropriate forum for judicial review of Federal 
administrative action. 

The present forum for the review of most agency actions taken on 
formal evidentiary records is the court of appeals under specific 
statutory provisions. There are some exceptions. An important one 
concerns decisions of the Social Security Administration on claims of 
old-age, survivors', and disability benefits, which are reviewable 
in the first instance by district courts with subsequent recourse to 
the courts of appeals. 

The jurisdictional picture is less clear \vith respect to informal 
administrative action, both notice-and-comment rulemaking and non- 
record adjudication. 

Some recent statutes provide specifically for review by courts of 
appeals of rules of general applicability promulgated without an evi- 
dentiary hearing. There is much uncertainty, and conflicting authority, 
as to whether older statutes providing for direct appellate review of 
agency orders apply to such rules. In the case of agencies not subject 
to specific court of appeals review provisions, rules are ordinarily 
reviewed by district courts under the general review provisions of the 
Administrative Procedure Act. 



24 -«—V.COK...,.eKO. .„.„,„,, 3T...S 

Orders entered after nonrecord nW r 

of other agencies entered after ""'" "" *e practice fV? 

■n tl,e district coJrLiTtr'''''''','^>^'ii'='tioVZ^^^^^ 
Administrative Procedure tt ^ '"""'^ ^-'-^- P™visio„s ^^he 
^legislation that conformed t„ ,1, ■ 

eJimmate the uncertainty and onZ ^ "* legislation would 

oad pressure on the courts osZlh A V ""'' '"^''^''sing case 

This recommendation rests on fV, ... 
review by the courts of aonel *'"*, '"'^■« premises. First direc, 
■n 'he interest of efficiencTatd' '1"" ''"■'"^' '^ g^n-alird'siVaWe 
an thejudicial system. /he'':i'i:L"rarfortJ?^"^ ""'^ "« » '' 

premL LTv^ rtt'f " ™ ^" -it'tu^Xd' T?"" !: 

not ■>,.„ .'^e'^er, is that direct review K„ .k 'ecora. A second 
not necessarily rendered unfeasible 1^^^ .*' '"""''^ »' appeal, is 
the records generated by the nroee ^ .' "'"'""'' <" ^"* ~d 
n^akmg and of informal'ldtdi ™t r? "^/""^^-""i-comment ru 1' 
purpose of judicial review andlk ^'''""'^''y adequate to the 

without the neces,si-.- -f I j "dti» ^ fl."'"*"^ '"' '"PplemenLd 
premise is that review by the cTunf: f ^""^ '!'""■ and qua%ing' 
« o a p„,,y ^pp^„^^^ nature or if l„r '"^"'l'' ^™n when review 
hy the courts of appeals is LT' "' ''''" ^^asibly be conducted 

appeals, burdened by rapid v.nV"™"""^ desirable. The Courts of 
quality of their decijols co„ '"t f'""^ ""''^""^ *« threaten the 
served, to the extent p;ss b le tM'rH ?"""" '"« ^"^-'^ t 
policy issues of major impact „7 "^^^olution of issues of law or 

not present such issu'esand'thi^tldn'r'':' review cases thar^o 

J> tTe'd : ""'"^ "'-^ht there nitilCshoT/K'^ '"'"'' ""' »"'^ 
to the district courts. initially should be assigned instead 

the^ctfe:tr„lTa rilfptfedr-'"^"^"'- ^^ "-^d was made 
of-forum for judicial revlwn eT "^"'""'"^ """"""^ «' choice! 

and the recommendations eman:;;:""? ""' '"'"^""'" ^'"d-s 
mendations 72-6 (court of apoeals"""' '"''"""^ are Recom- 

prescribed on a record)- 72-7 d/'!"" °' ''"' '"'"''y P^a'ties 
^.72 7 (distnct court review of non-record 



OFFICIAL RECOMMENDATIONS 25 

selective service preinduction orders) ; 74-3 (court of appeals review 
of mining claims decided on a record) . The Conference has not caused 
these recommendations to be restudied in the light of the new criteria 
but believes that the recommendations remain appropriate. 

Recommendation 

1. Adjudications based on trial-type hearings and rules required 
by statute to be based on a hearing with a determination on the record 
should generally be made directly reviewable by courts of appeals. 
For certain types of formal administrative action, however, initial 
district-court review may be appropriate in the interest of conserving 
the scarce and overextended resources of the Federal appellate system. 
The district court should not be interposed unless the administrative 
action to be reviewed is of a type: (a) That rarely involves issu'es of 
law or of broad social or economic impact warranting routine review 
by a multimember court, and (6) such that district court review 
would significantly reduce the workload of the appellate courts. The 
latter condition is met only where the class of orders to be reviewed 
is numerous and, if reviewed initially by district courts, would infre- 
quently give rise to further appeal. 

2. For any class of formal administrative action that, even after 
initial district-court review, generates a large and burdensome volume 
of appeals, only a small proportion of which involve legal issues or 
issues of broad social or economic impact. Congress should consider 
the advisability of making appeals discretionary or of allowing appeals 
only upon certification by the district court. Under a system of 
discretionary appeals, leave to appeal, either by the agency or by an 
aggrieved party, should be granted only in cases where issues of law 
or of broad impact are involved. 

3. Orders of the Social Security Administration with respect to 
claims for disability, health insurance, retirement, or survivors' 
benefits should continue to be reviewed in the first instance by dis- 
trict courts. If the volume of social security appeals increases as 
dramatically as projected. Congress should consider the advisability 
of placing appellate review on a discretionary basis. 

4. Orders of the Department of Labor Benefits Review Board with 
respect to black-lung compensation claims under the Black Lung 
Act of 1972 are now subject to direct review by courts of appeals in 
accordance with the provisions of the Longshoremen's and Harbor 
Workers' Compensation Act. Congress should consider the advisa- 
bility of providing for initial district-court review of such orders. 

5. The appropriate forum for the review of rules promulugated 
pursuant to the notice-and-comment procedures of 5 U.S.C. § 553 
should be determined in the light of the following considerations: 

(a) Absence of a formal administrative record based on a. trial- 
type hearing does not preclude direct review of rules by courts 



26 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

of appeals because : (i) compliance with procedural requirements 
of U.S.C. § 553, including the requirement of a statement of 
reasons for the rule, will ordinarily produce a record adequate 
to the purpose of judicial review, and (ii) the administrative 
record can usually be supplemented, if necessary, by means 
other than an evidentiary trial in a district court. 

(6) Direct review by a court of appeals is appropriate whenever: 
(i) an initial district court decision respecting the validity of a 
rule will ordinarily be appealed ; or (ii) the public interest requires 
prompt, authoritative determination of the vahdity of the rule 

(c) Rules issued by agencies that regularly engage in formal 
adjudication and whose orders are subject by statute to direct 
review by the courts of appeals will normally satisfy the criteria 
of (6) above and in any event should be reviewable directly 
by the courts of appeals. 

(d) Rules of other agencies that do not satisfy the criteria of 
(6) above should generally be reviewable in the first instance by 
the district courts. 

6. (a) Informal administrative actions, other than rules, should 
generally be reviewable in the first instance by the district courts. 

(6) The court of appeals is the appropriate reviewing forum for 
informal actions that, as a class, fulfill all of the following conditions: 
(i) Typically involve issues of law or of broad social or eco- 
nomic impact; 

(ii) Typically do not require an evidentiary trial at the judicial 
level to determine either the underlying facts or the grounds 
or evidence on which the agency based its action; and 

{in) Are either few in number or, if numerous, would in most 
cases be likely to reach the appellate courts eventually if reviewed 
initially by district courts. Informal orders issued by agencies 
that mainly engage in formal adjudication and the formal orders 
of which are now subject by statute to direct review by the 
courts of appeals will normally satisfy these conditions and should 
therefore be reviewable by the courts of appeals. There is, how- 
ever, at least one exception. Informal, discretionary orders of 
immigration officials related to deportation, but not issued 
as part of any formal deportation proceeding, should continue 
to be reviewable in the first instance by the district courts. 

7. Statutes that give courts of appeals jurisdiction to review informal 
orders or rules should contain provisions, similar to that now con- 
tained in the Administrative Orders Review Act, 28 U.S.C. §2347, 



OFFICIAL RECOMMENDATIONS 27 

authorizing transfer of proceedings to a district court where a factual 
issue requiring a judical trial is presented. 

8. A Federal court which determines that it does not have jurisdic- 
tion of a judicial review proceeding should be authorized to transfer 
the proceeding, in the interests of justice and expedition, to a Federal 
court appearing to have jurisdiction. 

Separate Statement of Malcolm S. Mason and Robert L. Trachtenberg 

This is, we believe, the first time the Conference has chosen to make 
an important recommendation without obtaining in advance the views 
of the agency most affected and best informed. Paragraph 3 of the 
recommendation deals specifically with review of Social Security cases. 
Paragraphs 1 and 2 are more general, but the discussion focused 
primarily on Social Security cases and did not have the benefit of 
specific comment by the Social Security Administration. 

In a recent 4-week period that seems representative, over 95 percent 
of the litigated Social Security cases turned on factual issues of dis- 
abiUty. The other 5 percent turn on issues of law often of constitutional 
dimension; as to these it is neither desirable nor Useful that the review 
process be encumbered by a screening at district court or appeal court 
level. 

The disability fact cases come to the courts under a substantial 
evidence test with the benefit of analysis by several levels of agency 
staff, an administrative law judge and possible appeals council review 
of factfindings on which the agency at several levels and a district 
court have concurred; the likelihood of reversal is extremely small. 
In the few cases in which the agency appeals, it is, by set policy, seek- 
ing review of a case in which there is an issue of broad consequence and 
in which there is a conflict between a conclusion of the agency at 
several levels of administration and a district court ; the likelihood of 
reversal is presumably increased. 

The proposal for appeal Umited by discretion of the appeal court, or 
worse, by the district court, is bad in principle and probably unneces- 
sary. If considered at all it should be viewed with due attention to 
these principal differences. Despite large volume, appellate review 
is ordinarily as quick and undemanding as a discretionary screening 
would be. The multitiered appeal process has had a beneficial effect 
on the program. 

We believe that section 3, should have been deleted, particularly 
sentence 2 of section 3 and sections 1 and 2 should have been re- 
considered in the light of that deletion to avoid reliance on impressions 
about Social Security cases without the benefit of such guidance as 
advance consultation with the agency might have given. 



28 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Recommendation 75-4 

procedures to insure compliance by federal facilities with 
environmental quality standards 

(Adopted June 5-6, 1975) 

The Federal Government owns or operates over 20,000 facilities, 
ranging from huge miUtary establishments, national parks, and 
systems of prisons and veterans' hospitals to individual fish hatch- 
eries, Coast Guard stations and research laboratories. All of these 
facilities are required by Federal laws to comply with environmental 
quality standards established by National, State, or local law. 

As part of the Federal environmental protection program, a 1973 
Executive order directs Federal agencies to assess their pollution con- 
trol needs, develop plans for improvement and submit those plans and 
necessary budget requests for inclusion in the President's annual 
budget. This program has achieved significant results. Approximately 
$2.4 billion has been expended over the past eight years to improve and 
install pollution abatement equipment at Federal facilities. None- 
theless, instances of noncompliance by Federal facilities have persisted. 
Moreover, there are wide variations among the respective programs 
concerned with air, water, noise, solid waste, and ocean dumping, in the 
openness and efTectiveness of the procedures for securing Federal 
facility compliance. 

The Clean Air Act, the Federal Water Pollution Control Act, and the 
Noise Control Act each require agencies with control over Federal 
facilities to comply with both Federal and non-Federal pollution 
control standards "to the same extent (as) any person," unless other- 
wise exempted by statute. The Marine Protection Act requires all 
persons, including Federal officials, to obtain a Federal permit before 
dumping waste material in the ocean. Under the Solid Waste Disposal 
Act, Federal agencies need comply only with the U.S. Environmental 
Protection Agency's guidelines, which are less stringent than those of 
some States and localities. 

The Federal air, water, noise control, and solid waste statutes do 
not establish or specifically authorize procedures for their enforcement 
where Federal facilities are concerned. This problem is acute when 
considering non-Federal environmental quality standards, which 
constitute the bulk of the environmental standards Federal facilities 
must meet, because the non-Federal efforts to impose their enforce- 
ment procedures have been challenged by Federal agencies. Two U.S. 
Courts of Appeals have reached opposite conclusions concerning the 
authority of States to require Federal facilities to obtain air emission 
control permits required of all non-Federal sources of air pollution; 
a third court of appeals has held that Federal facilities must comply 



OFFICIAL RECOMMENDATIONS 29 

with State permit requirements with respect to water quality. But any 
decision, even of the Supreme Court, will leave substantial procedural 
problems. If the authority of the States to impose their permit and 
other enforcement procedures upon Federal facilities is upheld, some 
agencies will have to compl}- with a multitude of different State and 
local procedures. Because of the insufficiencies of the statutory pro- 
visions, a result denying such authority to the States, would leave 
only the present fragmentary and ineffective Federal procedures to 
insure the compliance of Federal facilities with environmental quality 
standards. 

Recommendation 

1. (a) The Clean Air Act, the Noise Control Act, and the Federal 
Water Pollution Control Act should be amended to vest in a single 
Federal agency the exclusive authority to develop and administer 
procedures to insure compliance by Federal facilities Avith non- 
Federal environmental quality standards. That agency should con- 
sider the use of emission control permits where they are not now 
employed. 

(6) If the Congress amends the Solid Waste Disposal Act to require 
that Federal facilities comply with non-Federal environmental qualit}^ 
standards, the amendment should vest in the single Federal agency 
referred to in paragraph (a) the exclusive authority to develop and 
administer procedures for compliance Avith such standards by Federal 
facilities. 

2. Procedures employed to insure compliance by Federal facilities 
wdth State, interstate, and local environmental quality standards 
should provide for: (i) local public notice and notice to local officials; 
(ii) opportunity for a public hearing (but not for a trial-type hearing 
except on issues of specific fact that the agency finds may best be 
resolved by trial-type hearing); and (in) authority for the presiding 
officer at any such hearing to make recommendations concerning 
compliance. 

Recommendation 75-5 

internal revenue service procedures: the audit and settlement 

processes 

(Adopted December 11-12, 1975) 

(a) Individual agent's requisition of returns of audit. The Internal 
Revenue Service should amend its procedures whereby an examining 
officer requisitions a tax return for the purpose of audit. The proce- 
dures should assure that the examining officer will make an adequate 
written explanation of his need to have the file, and that such ex- 
planation accompany the requisition and be reviewed by the request- 
ing officer's Group Manager. For returns that are requisitioned for 



30 ADMINISTRATIVE CONFERExNCE OF THE UNITED STATES 

reasons so routine as to make detailed written explanation unnecessary, 
however, a code number designating the reason for selection in each 
case should suffice. The categories of routine reasons for requisition 
should be specificall}' and narrowly defined in the Internal Revenue 
Manual. 

(b) Notification of reasons for selection for audit. (1) Each individual 
taxpayer should be given, at the time he is notified of the selection of 
his return for audit, a brief written statement of the selection program 
or other criterion on the basis of which his return was selected for 
audit. To the extent feasible, the selection of returns for audit should 
be made pursuant to programs and criteria established in advance. 

(2) The Internal Revenue Service should annually publish sta- 
tistics, by income level, shoeing the number of returns examined, the 
results of the examinations, and other pertinent information, for 
each of its selection programs and criteria. 

(c) Repetitive audits. The Internal Revenue Service should establish 
the following procedures to be observed with respect to an individual 
who has undergone one or more audits with respect to the three 
preceding taxable years resulting in no change or only small change 
in his tax liability : 

(1) The district office's Returns Program Manager should not 
assign that individual's return to an audit group unless it is 
accompanied by an adequate file reflecting such recent audit 
experience. 

(2) Before contacting the taxpayer, the Group Manager 
and the examining officer should carefull}' review the current 
return in light of the taxpayer's past audit history- to determine 
whether the issues presented by the current return are similar 
to those of prior audits. If the}' are, the current year's return 
should not be further examined unless there is compelling reason 
to believe that a substantial tax change will result. 

(3) When it is decided that the return should be further 
examined, then, before the examining officer commences his 
review of the taxpayer's books and records, the taxpayer should 
be informed in writing that he may inquire about the necessity' 
for this repetitive audit. 

Taxpayer Compliance Measurement Program (TCMP) audits should 
not be subject to the foregoing procedures. 

(d) Review of audit selection. The Internal Revenue Service should 
carry out a sj'stematic ongoing evaluation of its selection of tax- 
payers' returns for audit. It should at a minimum maintain procedures 
whereb}' the reasons for audit selection, as indicated b}- Service 
personnel on Forms 1247 (Examination Record) or 4298 (Audit 
Requisition and Information Report), can be verified for appro- 



OFFICIAL RECOMMENDATIONS 31 

priateness and accurac}'. The procedures established should be 
sufficient to enable the Joint Committee on Internal Revenue Taxa- 
tion or other Congressional oversight body to obtain listings of all 
or a specified portion of the returns selected for audit, identified 
by any of the following characteristics: Taxpayer name and identifica- 
tion number; return document locator number; specific (coded) 
reason for selection; year for which return was filed; date of audit 
selection; and date of audit completion. 

(e) Staffing for TCMP audits. To minimize the time of taxpayers 
and of Service personnel devoted to the income tax aspects of the 
Taxpayer Compliance Measurement Program (TCMP), the Internal 
Revenue Service should select from among its most capable and 
experienced Revenue Agents and Tax Auditors the personnel to 
conduct TCMP income tax audits and related research projects. 

(f) Advice to taxpayers regarding retention of records. The Internal 
Revenue Service should annuall}^ endeavor to inform each taxpayer: 

(1) that an audit of his return, should there be one, will not likely 
commence for some period of time after the return has been filed; 

(2) that the taxpaj-er should retain, for use in case of audit, a copy 
of his return and all records which support the return for at least 
three years following the time fixed by law for its filing; and (3) that 
his receipt of a refund, based on the calculations in the tax return, 
does not preclude audit of that return at a later time. This recom- 
mendation could be fulfilled, for example, by presenting such in- 
formation prominentl}^ in the Commissioner's annual message or 
elsewhere in the instruction materials accompanj'ing the forms 
mailed to taxpayers. 

ig) Measurement and promotion of voluntary compliance. The Internal 
Revenue Service should seek funds from the Congress to undertake 
studies to evaluate the effectiveness of methods to measure and 
promote voluntary compliance with the tax laws of the United States. 
Such inquiries should include consideration of return selection meth- 
ods, audit procedures, collection procedures, programs for the educa- 
tion of taxpayers, and taxpayer assistance services. 

(h) Analysis of recovery experience. The Internal Revenue Service 
should periodically publish a comparative study, for each taxpayer 
class, of a representative sample of District and Appellate Conference 
settlements involving the most commonly controverted issues. The 
study should include comparison and analysis of the recovery ratio 
(i.e., the ratio of the amount of deficiency agreed upon by the parties 
to the amount of deficiency originally recommended by the examining 
officer), with reference to the factors of: (1) amounts of tax involved; 
(2) whether or not the taxpayers were represented; and (3) patterns 
of geographic variation. 



32 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 



Recommendation 75-6 
internal revenue service procedures: collection of delinquent 

TAXES 

(Adopted December 11-12, 1975) 

(a) Notices mailed to delinquent taxpayers. The Internal Revenue 
Service should revise its methods of notifying taxpayers of the applica- 
tion of forcible collection powers to collect delinquent accounts: 

(1) The Service should experiment with sending its Final Notice 
Before Seizure by certified mail, return receipt requested, before 
forcible collection action is initiated. 

(2) The Final Notice Before Seizure should be revised to 
indicate that forcible action may be taken at any time after the 
expiration of ten days from date of the Notice and to emphasize 
that such action may thereafter be taken without further notice 
to the taxpayer. 

(3) If no levy or seizure action is initiated after an unusually 
long interval, such as 120 days, after the date of a Final Notice 
Before Seizure, the District Office should undertake additional 
actual notification to the taxpayer that levy or seizure will follow 
promptly, but not sooner than ten days thereafter. Such ad- 
ditional notification should be attempted by telephone or personal 
contact, and if no contact is established, by certified mail, return 
receipt requested. 

(b) Income tax liens. In connection with the recording or filing of 
income tax liens, the Internal Revenue Service should establish 
and promulgate in the Internal Revenue Manual: 

(1) Factors to be considered in determining whether such liens 
are to be recorded or filed ; 

(2) Procedures to ensure, to the extent feasible, that the tax- 
payer is notified of the recording or filing of such lien against his 
property ; and 

(3) Procedures to ensure, without the necessity of application 
by the taxpayer, that upon payment or satisfaction of a delinquent 
account, a release of such lien is properly recorded or filed in all 
places where notice of such lien was recorded or filed. 

(c) Levies on liquid assets. (1) The Internal Revenue Service should 
establish and promulgate in the Internal Revenue Manual affirmative 
and specific guidelines for resort to levies on liquid assets (in addition 
to specifying, as it now does, when these powers should not be used) 
in order to achieve fair and evenhanded application thereof. In 
formulating such guidelines, the Service should by illustration seek 
to specify the circumstances in which the debtor is provided a "reason- 
able" opportunity to pay the tax and which constitute "judicious" 
use of the levy powers. 



OFFICIAL RECOMMENDATIONS 33 

(2) In order to reduce the possibility of undue or unanticipated 
hardship to deHnquent taxpayers against whom salary or wage levies 
are imposed, legislation should be enacted to exempt from levy a 
minimum amount of the taxpayer's salary or wages, such amount 
to be based in part upon the number of dependents of the taxpayer. 
Such legislation should also provide that a levy on salary or wages of 
a taxpayer be continuous from the date the levy is first made until 
the tax liability with respect to which it is made is satisfied or becomes 
unenforceable because of the lapse of time. 

(d) Seizures and sales of nonliquid assets. (1) The Internal Revenue 
Service should establish the following procedures to ensure that the 
taxpayer is injured as little as possible by the seizure and sale of 
nonliquid assets, consistent with collection of the delinquent taxes: 

(i) Withdrawal from Revenue Officers and delegation only to 
Group Managers of the authority to determine that seizure will 
be imposed ; 

(ii) Determination by the Group Manager, prior to imposition 
of the seizure, that the proceeds of sale of the seized assets will 
exceed the anticipated expenses of sale ; 

(iii) Return to the taxpayer of any item of property as to which 

a determination can reasonably be made that the minimum sale 

price is unlikely to exceed the Service's expenses of seizure and 

sale. 

(2) To provide qualitative information concerning seizures and sales 

of nonliquid assets, the Internal Revenue Service should from time to 

time collect, tabulate, and analyze data on: 

(i) The number of seizures, as it now does; 

(ii) The number of sales; 

(iii) The gross proceeds from sales; 

(iv) The funds applied in reduction of tax liabilities; 

(v) Personnel and other overhead costs incurred by the Serv- 
ice in the seizure and sale proceedings; 

(vi) The number of releases back to the taxpayer of seized 
property; and 

(vii) The reasons for such releases. 

(e) Undue hardship. The Internal Revenue Service should continue 
to exempt from levy or seizure those taxpayers to whom undue hard- 
ship would result from such activity. However, the Service should 
establish and promulgate more specific criteria and procedures to 
make the application of the undue hardship principle more uniform. 
These should include: 

(1) A listing of criteria for exempting funds sufficient for the 
purchase of common necessaries of life for the taxpayer and his 
dependents, including food, housing, transportation, and clothing; 



34 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

(2) Clear advice as to what information and documentation 
is needed for the Service to make the determination of hardship; 
and 

(3) Sufficient time and opportunity for the taxpayer to obtain 
the information and documentation necessary to complete 
and support the financial statement on which the determination 
will be based. 

(J) Installment payments of delinquent taxes. The Internal Revenue 
Service should establish and promulgate in the Internal Revenue 
Manual procedures to enable taxpayers to pay their delinquent ac- 
counts in installments in appropriate circumstances. The Service 
should endeavor to ensure that the monthly sum of installment pay- 
ments required of the taxpayer towards liquidation of his delinquent 
account does not exceed the amount of the taxpayer's monthly take- 
home income less his monthly expenses for common necessaries of 
life. The Service should keep line personnel advised of the minimum 
acceptable installment in order that the costs to the Service from 
processing any such payments do not exceed the sum of any such 
payment. No payment agreement should be rejected solely because 
of the length of time it would require to satisfy the debt; however, 
waiver or extension of the statute of limitations for collection should 
be obtained if the time needed for payment will extend beyond the 
limitations period, and the agreement should be subject to at least 
annual review and adjustment to reflect changes, if any, in the tax- 
payer's ability to liquidate the unpaid delinquency. Finally, the 
Service should discontinue any reference to agreements for payment 
of delinquent taxes in periodic installments as "part payment" agree- 
ments because such terminology fosters the mistaken impression 
that a portion of the tax debt has been forgiven. The idiom of "part 
payment agreement" should be supplanted with such terms as 
"installment agreement," "periodic payments," or others which do 
not connote that less than the total delinquency is to be paid. 

(g) Jeopardy and terminution assessments. (1) In order to prevent 
abuse of the authority to make jeopardy and termination assessments, 
the Internal Revenue Service should establish and promulgate pro- 
cedures that will enable the taxpayer to contest the necessity and 
amount of such assessments at the earliest possible time. The taxpayer 
should be furnished as soon as practicable after the assessment is made 
a full written explanation of the facts upon which (i) the District 
Director found that collection of a tax deficiency is or has been 
jeopardized; and (ii) the computation of tax was based (including 
the method of such computation). An informal conference should be 
granted at the taxpayer's request to resolve any dispute over the 
finding of jeopardy and computation. The investigating agents who 



OFFICIAL RECOMMENDATIONS 35 

developed the facts upon which the finding of jeopardy and the 
computation of tax was based, and their supervisors, should ordinarily 
be in attendance at such a conference. 

(2) In order to restrict the imposition of jeopardy and termination 
assessments to situations in which the eventual collection of tax is 
jeopardized, the Internal Revenue Service should remove the implica- 
tion, now present in the Internal Revenue Manual, that jeopardy 
or termination assessments are justified merely by the existence of a 
"prima facie case" and make clear in the Manual that no such assess- 
ment may be imposed unless a determination has been made by the 
District Director, based on substantial evidence, that a tax is due and 
the eventual collection of the tax is jeopardized. 

(3) The Internal Revenue Service should establish and promulgate 
in the Internal Revenue Manual procedures which will ensure im- 
mediate release to the taxpayer of any or all property distrained in 
jeopardy and termination proceedings in return for an adequate surety 
in the amount of the net proceeds expected to be realized on a forced 
sale of any or all such property the release of which is sought. 

(h) Employer tax payments. To permit more prompt contact with 
defaulting business taxpayers, the Internal Revenue Service should 
speed its crediting of employer payments of withheld employee income 
and Social Security taxes by requiring commercial banks to forward 
records of such payments directly to an Internal Revenue Service 
Center, rather than to a Federal Reserve Bank. 

(i) Education of new employers. The Internal Revenue Service should 
endeavor to give officers of new businesses written advice of their 
possible personal liability for payment of withheld employee taxes. 
This advice could be communicated individually to all such officers, 
whose names and addresses the Service could require to be submitted 
as part of the application for an employer identification number. 
Alternatively, the Service could send multiple copies of the advice 
letter to the new business entity, with the request that the copies be 
distributed to all officers. In either case the letter should invite the 
officer to discuss any questions with a Taxpayer Service Representa- 
tive. When officers do respond and it is determined that there is a re- 
sponsibility to pay and file returns of certain taxes, a follow-up contact 
should be made to ascertain that the responsibilities are understood 
and followed. Moreover, the Service should work with other Federal 
agencies to assure that the officers of new employer organizations being 
established with Federal financial assistance will become familiar with 
their responsibihties before they commence operations. Similar ef- 
forts, with the cooperation of parent organizations, should be made to 
contact and instruct franchisees and licensees of chain stores, food 
outlets, oil companies, and the like. 



36 ADMINISTRATIVE CONFERENXE OF THE UxNITED STATES 

Recommendation 75-7 

internal revenue service procedures: civil penalties 

(Adopted December 11-12, 1975j 

(a.) Analysis of EJectiveness of Civil Penalties. The Internal Revenue 
Service should annually compile and publir^h, for each taxpayer class 
and by year of tax returns, statistical data, together with analytic 
discussions, pertaining to the assessment and collection of civil penal- 
ties for underpayment of tax due to each of the different types of 
conduct now or hereafter provided as the basis for such penalties. 
Such data should be compiled for the purpose of evaluating the 
significance, effectiveness, and fairness of these civil penalties and 
should include: (1) the number and dollar amounts of penalties 
assessed; (2) the number and dollar amounts of penalties voluntarily 
paid by taxpayers; (3j the number and dollar amounts of penalties 
contested by taxpayers; (4) the number and dollar amounts of penal- 
ties sustained by court action and collected. In addition to making 
such data and analyses available to the public and to the Congress, 
the Service should consider and determine whether additional data 
and analyses should be compiled and prepared pertaining to the 
significance, effectiveness, and fairness of these and other civil penal- 
ties from the standpoint of the administration of the tax laws by the 
Service, enforcement of the laws by the courts, and compliance with 
the laws by taxpayers. 

(bj Strvxture ami Application of Civil Penalties for Urulerpayment 
of Tax. Legislation should be enacted which would restructure and 
alter application of the civil penalties for underpayment of tax, estab- 
lished in Section 6653 of the Internal Revenue Code, as follows: 

(1; (ij The penalty for "negligence" should be retained. Negli- 
gence should be defined as failure to exercise reasonable care in 
keeping records or in preparing the tax return. 

(iij A taxpayer against whom this penalty is assessed should 
have the burden of proof to establish by a preponderance of the 
evidence that his conduct was not negligent. 

(2) The present five percent penalty for "intentional disregard 
of rules and regulations (but without intention to defraud)" 
should be repealed. 

(3) (i) A new penalty should be established for "reckless or 
intentional conduct (but without willful attempt to evade pay- 
ment of tax)." The rate of this penalty should be fixed at a level 
near the midpoint (say 25%) between the rates of the penalties 
for negUgence (now 5%) and for \\'illful attempts to evade pay- 
ment of tax (now 50%). Reckless conduct should be defined as 
meaning that in keeping records or preparing the tax return, the 



OFFICIAL RECOMMENDATIONS 37 

taxpaj-er has consciously disregarded a substantial risk that an 
underpayment would occur; pro\*ided, that it is not intended 
that the penalty to be established pursuant to this paragraph 
would apply to an underpayment resulting from a bona fide 
disagreement Anth the Internal Revenue Service as to the inter- 
pretation of the tax law or its application to facts disclosed on a 
tax return. Intentional conduct should be defined as meaning 
that in keeping records or preparing the tax return, the taxpayer 
knew that an underpaj^ment would occur or was substantiall}'^ 
certain to occur. 

(ii) A taxpayer against whom this penalty is assessed should 
have the burden of proof to establish b}- a preponderance of the 
e-vidence that his conduct was not reckless or intentional. In any 
case where the taxpayer succeeds in persuading the court that his 
conduct was not reckless or intentional, the court should be em- 
powered to impose the lesser penalty for negligence, even though 
it had not theretofore been assessed by the Internal Revenue 
Service. 

(4) (i) The present 50 percent penalty for "fraud" should be 
restated to apply only to ''willful attempt to evade payment of 
tax," which should be understood to have the same meaning as 
under Section 7201 of the Internal Revenue Code. 

(ii) The Internal Revenue Service should have the burden of 
proof to establish by clear and convincing evidence that an 
underpayment is attributable to the taxpayer's A\illful attempt to 
evade payment of tax. If the Service succeeds in persuading the 
court that a part of the underpayment is so attributable, the 
burden of proof should shift to the taxpayer to establish by a 
preponderance of the evidence that the remainder of the under- 
payment is not so attributable. In any case where the court is 
not persuaded that the taxpayer engaged in a ^rillful attempt to 
evade payment of tax, the court should be empowered to impose 
the penalt}- for reckless or intentional conduct (proposed in c. 
above) or the penalty for negligence, provided that, before the 
court may impose either of such lesser penalties, the Service shall 
have so proposed and the taxpayer shall have had the opportumt\" 
to present evidence to establish that he is not liable therefor. 

(5) In imposing the penalties for underpayment of taxes de- 
scribed above, each penalt}' rate should be applied onl}' to the 
portion of the total underpayment that is attributable to conduct 
liable for penalty at such rate. 

(c) Publicity of Civil Penalty for Underpayment of Tax Because of 
Fraud. The Internal Revenue Ser\'ice should seek statutory instruc- 
tion with respect to publicizing the imposition of the 50 percent ci\-il 
penalty for underpayment of tax because of fraud (or, as recom- 



38 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

mended in paragraph (b)(4) of this section, restated as "willful at- 
tempt to evade payment of tax").^ 

(d) Structure and Application of Civil Penalties for Failure to File 
Tax Return or to Pay Tax. (1) Legislation should be enacted which 
would restructure and alter application of the civil penalties for 
failure to file a tax return or to pay a tax, established in Section 6651 
of the Internal Revenue Code, as follows: 

(i) The phrase "and not due to willful neglect" should be 
deleted from paragraphs (1), (2), and (3) of subsection 6651(a). 

(ii) (A) The monthly rate of the penalty for failure to file a 
return, estabhshed in subsection 6651(a)(1), should be modified 
so as to extend the time period of lateness in filing a return which 
must elapse before the rate of j>enalty to be applied reaches the 
present aggregate maximum rate of 25 percent. The table below 
sets forth three options for so modifying the monthly penalty rate, 
compared with present law. 

Penalty for first Penalty for each Period of lateness to 

month (percent) succeeding month reach maximum 

(percent) penalty (months) 

Present law 

Option 1 

Option 2 

Option 3 

The penalty for failure to pay tax established by subsection 

6651(a)(2) should be imposed in addition to, and not offset 

against, the foregoing penalty. 

(B) The monthly rate of the penalty for each month after the 

first month of failure to file a return should be prorated on a 

semi-monthly basis. 
(2) The Internal Revenue Service should set forth, in the regulations 
under Section 6651 of the Internal Revenue Code, or in other form 
readily available to the public, the listing of acceptable reasons for 
late filing of a tax return that are set forth in the Internal Revenue 
Manual. 

(e) Procedures for Appealing Civil Penalties for Failure to File Tax 
Return or to Pay Tax. With regard to civil penalties for failure to file 
a tax return or to pay tax established in Section 6651 of the Internal 
Revenue Code, taxpayers should be accorded administrative settle- 
ment procedures and the right to Tax Court review similar to those 
accorded with regard to civil penalties for underpayment of tax 
established in Section 6653 of the Code. 



5 


5 


5 


5 


2 


11 


5 


m 


16 


5 


1 


21 



' Issuance of such publicity should be carried out in a manner consistent with Conference Recommen- 
dation 73-1, Adverse Agency Publicity. 



OFFICIAL RECOMMENDATIONS 39 

Recommendation 75-8 
internal revenue service procedures". tax return confidenti- 

ALIT-i: 

(Adopted December 11-12, 1975) 

(a) Purpose and Scope oj Application of Recommendations. (1) Under 
existing law, tax returns are disclosed by the Internal Revenue Service 
for many purposes to many governmental agencies outside the 
Internal Revenue Service. The purpose of these recommendaticns 
is substantially to narrow the authority of the Service to disclose to 
other governmental agencies tax returns pertaining to the tax liability 
of individuals and decedents, including principally individual income 
tax returns (Forms 1040 and 1040A), estate tax returns (Form 706), 
gift tax returns (Form 709), and income tax returns filed on behalf 
of estates or trusts (Form 1041). Tax returns of business entities such 
as partnerships and corporations, even though they may have bearing 
on the tax liability of individuals, are outside the scope of these 
recommendations. The omission of such other tax returns from the 
scope of application of these recommendations is intended to reflect 
neither approval nor disapproval of existing law or of the disclosure 
practices of the Internal Revenue Service thereunder, with respect to 
such other tax returns. But Congress, in addressing the subject of 
tax return confidentiality should make provision to govern the confi- 
dentiality and conditions of disclosure of all categories of tax returns, 
including categories that are outside the scope of these recommenda- 
tions. 

(2) As used in these recommendations, the term "tax return" 
means (i) the return itself together with any schedule, list, and other 
written statement filed by or on behalf of the taxpayer with the 
Internal Revenue Service which is designed to be supplemental 
to or become a part of the return, and (ii) other records, reports, 
information received orally or in writing, factual data, documents, 
papers, abstracts, memoranda, or evidence taken, or any portion 
thereof, relating to the items included in paragraph (a)(2)(i) of this 
section.^ 

(b) General. Legislation should be enacted which would permit the 
disclosure of tax returns by the Internal Revenue Service only as 
authorized by express statute designating the persons to whom and 
the purposes for which disclosure may be made, the procedures govern- 
ing such disclosure, and limitations on use or redisclosure that shall 
govern such disclosure. 

(c) Availability of Tax Returns to Executive Departments and Agencies. 
(1) Legislation should be enacted which would permit the disclosure 

' This definition is taken from Treasury Regulation § 301.6103(a)-l(3)(i). In considering any legislation 
in this area, Congress should consider the adequacy of this definition, since some technical problems may 
exist under the present regulation. 



40 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

by the Internal Revenue Service of tax returns to any Executive 
department or agency of the Federal government in the following 
circumstances : 

(i) To any office of the Treasury Department for use that is 
necessary to its exercise of responsibility for the administration 
of the tax laws, the formulation of tax policy, or the preparation 
of economic analyses. 

(ii) To a United States Attorney, or to an attorney of the De- 
partment of Justice, for use in preparing for and conducting civil 
or criminal litigation that is related to administration of the tax 
laws, provided, that any such disclosure, shall be limited to (A) 
the tax return of the taxpayer who is a party to the litigation, 
(B) the tax return of an alleged co-conspirator of such party, 
and (C) the tax return of any other taxpayer which contains 
information that is pertinent to an issue on the litigation, and 
provided further, that when any such disclosure is to be made in 
response to a request initiated by any such attorney, the request 
shall be in writing and state with specificity the reasons for seeking 
the tax return. 

(iii) To the Bureau of the Census and to the Bureau of Ec- 
onomic Analysis of the Department of Commerce for use that is 
necessary to their respective statistical collection and publication 
responsibilities. 

(iv) To the Social Security Administration for use that is 
necessary to its responsibility for administering the Social 
Security Act. 

(v) To the Department of Labor and to the Pension Benefit 
Guaranty Corporation for use that is necessary to their respective 
responsibilities for administering the Employee Retirement 
Income Security Act. 
Particularly, the Internal Revenue Service should not be permitted 
to disclose tax return information to any Executive department or 
agency of the Federal government for use in any way relating to an 
individual's service as a juror. [The Conference defers consideration 
of whether, and under what circumstances, tax returns should be 
disclosed to Executive departments or agencies of the Federal govern- 
ment for use in litigation or investigations not related to the adminis- 
tration of the tax laws.] 

(2) Any disclosure in a form that allows identification of the tax- 
payer should be made only if the agency or department to which 
disclosure is made follows procedures based on legally enforceable 
regulations no less restrictive than those of the Internal Revenue 
Service which are designed to assure that the tax return will not be 
used or redisclosed for any purpose other than that for which such 
disclosure is made. 



OFFICIAL RECOMMENDATIONS 41 

(d) Availability of Tax Returns to the Executive Office of the President. 
(1) Legislation should be enacted which would permit the disclosure 
of tax returns by the Internal Revenue Service to the Executive Office 
of the President, only in accordance \vith the following limitations: 

(i) The President shall personally sign a written request for 
such disclosure which (A) specifies the taxpayer's tax return to 
be disclosed ; (B) designates by name a responsible individual to whom 
disclosure is to be made; (C) states with specificity the reasons 
for seeking the tax return and the uses to which it will be put; 
and (D) states that the tax return requested will not be reproduced 
and will not be used or redisclosed for any use other than that for 
which disclosure is requested. 

(ii) The requested tax return shall be furnished by the Internal 
Revenue Service only in Avritten form and only to the President 
or to an individual designated in the request. 

(iii) The written material furnished by the Internal Revenue 

Service shall be returned to the Service after the use for which it 

was requested has been completed. 

(2) The Internal Revenue Service should maintain permanent 

records of all disclosures of tax returns to the Executive Office of the 

President, including copies of Presidential requests, the dates and 

reasons therefor, the individuals to whom disclosure is made, and the 

dates when materials furnished are returned to the Service. Based on 

such records, the Internal Revenue Service should prepare and submit 

an annual report to the committees of the Congress which are charged 

with responsibility for oversight of the administrative procedures of 

the Service, of the names of all taxpayers about whom information 

was disclosed, the reasons for which each disclosure was requested, 

and the names of all individuals to whom such disclosures were made. 

(e) Availability of Tax Returns to Committees of Congress. The existing 
statutory authority (Section 6103(d) of the Internal Revenue Code) for 
the Senate Committee on Finance, and the Joint Committee on In- 
ternal Revenue Taxation should be continued. Disclosure of tax re- 
turns by the Internal Revenue Service to any other committee of the 
House or Senate, or joint committee of the Congress, should only 
be in accordance with specific authorization for such disclosure by a 
resolution of the House or Senat3 or, in the case of a joint committee, 
by a concurrent resolution. 

(f) Availability of Tax Returns to States. (1) Legislation should be 
enacted which would amend Section 6103(b) of the Internal Revenue 
Code by providing the following additional limitations on the right 
of any State official, body, or commission to inspect tax returns: 

(i) The State shall have enacted a statute, which the Commis- 
sioner of Internal Revenue has determined to be 
substantially similar to paragraph (2) of Section 7213 of the 



42 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Internal Revenue Code, making it a crime for any officer, 
employee, or agent of the State, or of any political subdivision 
thereof, to disclose any information acquired by him as a con- 
sequence of a disclosure made by the Internal Revenue Service 
pursuant to Section 6103(b) of the Internal Revenue Code, 
(ii) The State shall have entered into, and shall fully comply 
with, an agreement with the Internal Revenue Service by which 
the State is obligated to adopt legally enforceable regulations 
and procedures to safeguard the confidentiality of tax returns 
which are determined by the Internal Revenue Service to pro- 
vide satisfactory assurance that (A) information disclosed by 
the Service to the State, pursuant to Section 6103(b) of the 
Internal Revenue Code, and (B) information, submitted by a tax- 
payer to the State or local tax authorities, which is the same as or 
substantially similar to that compiled for submission with the 
taxpayer's federal income tax return, will be used or disclosed 
only within the limitations therein provided. 
(2) The Internal Revenue Service should adopt regulations which 
shall contain provisions to accomplish the following: 

(i) Establish procedures whereby (A) the Service will make the 
determination that a State has enacted a statute that is substan- 
tially similar to paragraph (2) of Section 7213 of the Internal 
Revenue Code, and (B) the Service will monitor the State's 
enforcement of such statute; 

(ii) Establish criteria that will be applied by the Service in 
making determinations regarding the sufficienc}- of State regula- 
tions and procedures designed to limit use and redisclosure of 
information to be disclosed pursuant to Section 6103(b) of the 
Internal Revenue Code; 

(iii) Establish criteria that will be applied by the Service in 
acting upon requests for disclosure of information pursuant to 
Section 6103(b) of the Internal Revenue Code; and 

(iv) Establish procedures whereby the Service will audit and 
enforce the performance by the States of their obligations pro- 
vided in agreements entered into as a condition of obtaining 
disclosure of information pursuant to Section 6103(b) of the In- 
ternal Revenue Code, including a procedure for suspending dis- 
closure of information to a State under Section 6103(b) whenever 
the Service determines that the State has failed to perform any 
of its obligations provided in such agreement, 
(g) Requisition of Tax Returns by Service Personnel. The Internal 
Revenue Service should strengthen its procedures designed to eliminate 
unnecessary inspection of tax returns b}' Service employees. Such pro- 
cedures should provide for (1) periodic monitoring by Service manage- 
ment of the requisitioning of tax returns by Service employees. 



I 



OFFICIAL RECOMMENDATIONS 43 

(2) preparation and maintenance of statistical records designed to 
reveal patterns of frequency in, and of reasons for, the requisitioning 
of tax returns by Service employees, and (3) preservation of the docu- 
ments employed by Service employees to requisition tax returns by 
incorporating each such document in the permanent file of the return 
requisitioned thereby. 

(h) Notice to the Public About Tax Return Disclosures. The Internal 
Revenue Service should inform each taxpayer, by means of a concise 
statement in the tax return or other appropriate place, of the disclo- 
sure, for uses unrelated to the administration of Federal tax laws, 
that may be made of information supplied by the taxpayer in the 
return. Such statement should include reference to a public document, 
which should be prepared and disseminated by the Service, which iden- 
tifies the governmental agencies and other persons to which disclo- 
sures of tax returns are made and the purposes for such disclosures, 
and which fully describes the procedures followed by the Service with 
respect to the disclosure of tax returns.^ 

Amendment to Recommendation 75-8 

Tax ReTUKX CoNrlDEXTIAEITY 

(Adopted June 8-4, 1970) 
(b) General 

(1) Legislation should be enacted which would permit the disclosure 
of tax returns by the Internal Revenue Service only as authorized by 
express statute designating the persons to whom and the purposes for 
which disclosure, and limitations on use or redisclosure that shall 
govei'n such disclosure. 

(2) Legislation should be enacted which would provide that tax 
I'eturns pertaining to the tax liability of individuals and decedents are 
confidential and, except as specifically authorized by statute, shall not 
be disclosed by the Internal Revenue Service to the general i^ublic, or 
any individual member thereof, either at the initiative of the Internal 
Revenue Service or in response to a request for disclosure made to the 
Service by any member of the general public, provided that such 
prohibition shall not prevent disclosure by the Service of any tax 
return of an individual or a decedent upon a request duly made by such 
individual or his authorized representative or by the authorized repre- 
sentative of such decedent. 

(3) Legislation should be enacted providing, as a general limitation 
on all tax return disclosure authority conferred on the Internal Reve- 
nue Service, that in making any authorized disclosure of a tax return 
to any person other than the taxpayer to whom the return pertains, 



' This recommondation might be implpnifiitcd by iwnplificalioii of Iho I'livacy Acl notilicalion providi'd 
with the 197.^ income tax returns. 



44 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

the Service shall disclose no more information than is necessary to 
effectuate the purpose for which such disclosure is authorized and 
providing further that the Service shall establish administrative pro- 
cedures designed to assure that every particular disclosure is made in 
strict accordance with the authority therefor and with such general 
limitation. 

Recommendation 75-9 

Internal Revenue Service Procedures: 

Taxpayer Services and Complaints 

(Adopted December 11-12, 1975) 

(a) Separate Accounting for Taxpayer Service Functions. The Internal 
Revenue Service should, on a basis consistent from year to j^ear, 
compile data on all personnel and funds allocated to and utilized in 
the performance of functions by its Taxpayer Service Division. Such 
data should be broken down, perhaps on the basis of statistical sam- 
pling, for each of the major types of taxpayer service provided, with 
attention to at least the following functions: 

(1) Responding to individual inquiries and requests for assist- 
ance regarding administrative and operating procedures of the 
Service which have an impact on particular taxpayers; 

(2) Answering individual inquiries for tax law advice and 
providing assistance in tax return preparation; and 

(3) General education of members of the public about the 
tax laws, their tax-return-filing and tax-payment responsibilities, 
and the administrative and operating procedures of the Service. 

(b) Taxpayer Services. The Internal Revenue Service should con- 
sider establishing a procedure whereby taxpayer inquiries and requests 
for assistance can be promptly screened and referred for response 
to Service personnel selected on the basis of their competence and 
authority to respond to particular categories of inquiry or assistance. 
Such a screening and referral system might be facilitated by: 

(1) Developing statistical profiles of the categories of inquiry 
and requests for assistance that are most frequently made; 

(2) Specifically training and assigning some personnel to review 
taxpayer inquiries and requests for assistance and to make referral 
of them to those Service personnel whose competence and 
authority will assure prompt and effective responses; 

(3) Specifically training some personnel as specialists in the 
administrative and operating procedures of the Internal Revenue 
Service, with emphasis on the operation of Service Centers, to 
whom referral of inquiries and requests for assistance will be 
made; 

(4) Continuing to make available experienced and knowledge- 
able Audit Division personnel to whom referrals of inquiries 



OFFICIAL RECOMMENDATIONS 45 

and requests for assistance may be made, especially during tax- 
return-filing season; and 

(5) Continuing to maintain high quality staffing of taxpayer 
contact units in the Service Centers until some workable alterna- 
tive thereto is developed. 

(c) Tax Law Advice to Taxpayers. The Internal Revenue Service 
should adopt procedures designed to assure that any taxpayer who 
inquires for tax law advice from any employee of the IRS Taxpayer 
Service Division will be informed that: (1) the answer to his inquiry is 
based on the facts understood by the employee and that such under- 
standing may not be identical to, nor as comprehensive as, the tax- 
payer's; (2) the Service is not bound by the advice given by the 
employee and may assert a different position at some later date, for 
example, if the taxpayer's return is audited; (3) the advice given by 
the employee is based on the Service's interpretation of the tax laws 
and, if such be the case with respect to a particular inquiry, that there 
is authority for a different interpretaton as to which the taxpayer 
should seek his own tax law advice; and (4) the taxpayer should pre- 
serve any records pertaining to the subject matter of the inquiry for at 
least three years following the time fixed by law for filing the tax 
return to which the inquiry pertains. The substance of the foregoing 
information should be incorporated into all \vritten materials issued 
by the Service describing the availability of taxpayer services or 
responding to inquiries for tax law advice. The substance of such 
information also should be mentioned in oral responses to inquiries for 
tax law advice, to the degree appropriate to the nature and circum- 
stances of the contact. 

(d) (1) Taxpayer Complaint Response Procedures. The Internal 
Revenue Service should establish regular procedures whereby any 
taxpayer can obtain a prompt and impartial response to any legitimate 
complaint about the conduct of any individual IRS employee. These 
complaint response procedures should be organized and operated so as 
to provide for the receipt and processing of such complaints by Service 
personnel who have thorough familiarity with the authority, organiza- 
tion, and administrative and operating procedures of the Service. 

(2) The recommended complaint response procedures should be 
well publicized and easily accessible to taxpayers through all IRS 
personnel, however organized and wherever situated, whose responsi- 
bilities include the provision of assistance, advice, or other services to 
taxpayers (for example. Taxpayer Service Representatives and per- 
sonnel of Service Center Taxpayer Contact Units). 

(3) The recommended complaint response procedures should be 
designed and operated so as to provide information that will enable 
the line management of the Service systematically to: 

(i) Identify the causes of all legitimate complaints about the 
conduct of individual IRS employees; 



46 ADMINISTRATIVE CONFERP]NCE OF THE UNITED STATES 

(ii) Assess the effectiveness of the complaint response proce- 
dures from the standpoint of taxpayers; and 

(iii) Determine what changes, consistent with the Service's 
duty to administer the internal revenue laws, may be necessary 
in the training, supervision, or assignment of Service personnel to 
eliminate causes of legitimate complaints about the conduct of 
individual IRS employees. 

Recommendation 75-10 

internal revenue service procedures: the irs summons power 

(Adopted December 11-12, 1975) 

(a) Information on the Summons. The Internal Revenue Service 
should revise its Summons form (Form 2039) to delete extraneous 
language and references to particular statutes, regulations, or 
fact situations, and to include, preferably on its face, and in a 
prominent position and type style : 

(1) A brief and specific description of administrative pro- 
cedures available to the summoned party for raising objections 
to the summons or to questions propounded at the appearance; 
and 

(2) A statement that if the summoned party fails to comply 
with the summons or fails to answer questions propounded, the 
Service may seek a court order to compel compliance, and that 
where the summoned party fails to appear or otherwise to comply 
with the summons willfully and without legal excuse, he may be 
subject to contempt proceedings or criminal prosecution. 

(b) Notification to Taxpayer of Summons to Third Parties. At 
the time a summons is served on a third party requesting testi- 
mony or production of documents, or as soon as feasible there- 
after, the Internal Revenue Service should transmit a copy of 
such summons to the person to whom such testimony or docu- 
ments relate. 

(c) Management Monitoring of Use of Summons. To assure 
better oversight by its management of the use of the summons 
by its officers and employees, the Internal Revenue Service 
should prepare and maintain statistics and analyses for each 
taxpayer class, to the extent possible, comprising the following 
data: 

(1) Number of summonses issued ; 

(2) Classifications of employees issuing summonses; 

(3) Number of summonses with which there is voluntary 
compliance; 

(4) Number of summonses with which there is not voluntary 
compliance and for which it is decided not to seek judicial en- 
forcement, together with the reasons for such decisions; and 



1 



OFFICIAL recommp:ndations 47 

(5) Number of summonses with which there is not voluntary 
comphance and for which it is decided to seek enforcement, 
together with the reasons for such decisions, whether judicial 
enforcement is granted or denied, and the reasons for denial of 
enforcement. 

Recommendation 76-1 

exception from mandatory retirement for certain 
presidential appointees 

(Adopted June 3-4, 1976) 

The Civil Service Retirement Act subjects Federal employees to 
mandatory retirement at age 70 and upon completion of 15 years serv- 
ice, 5 U.S.C. § 8335 (1970). Under 5 U.S.C. § 8335(c), the President 
has broad discretionary power to exempt employees from mandatory 
retirement. 

This recommendation takes no position as to whether as a matter of 
personnel administration a policy of mandatory retirement for Fed- 
eral employees at age 70, coupled with authority to make exceptions 
in appropriate cases, is desirable. However, as applied to those of- 
ficers of the Executive branch who are appointed by the President with 
the advice and consent of the Senate the provisions of section 8335 
are awkward and inappropriate. Such officers serve either for an in- 
definite term at the pleasure of the President, for a definite term but 
nevertheless at the pleasure of the President, see, e.g., 28 U.S.C. § 541, 
§ 561 ; or for definite terms under statutes which limit the President's 
removal power in order to preserve the officers' independence from 
Executive direction and control. 

Where the officers serve at pleasure, the provisions of section 8335 
impose a restraint, albeit minor, on the President's appointment power, 
and are unnecessary to his supervisory responsibility over the execu- 
tion of the laws. However, they may have occasional value, where the 
officer's term is otherwise indefinite, in compelling consideration of the 
continued suitability of a longtime incumbent. Where tlie officer serves 
at pleasure but for a definite term, even this advantage largely disap- 
pears. Where the officers do not serve at pleasure, as in the case of the 
members of the independent regulatory commissions, the application 
of section 8335 is inconsistent Avith the goal of agency independence 
and a potential source of embarrassment to the officer, the agency and 
the President. 



48 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Recommendation 

Congress should amend 5 U.S.C. § 8335(d), which contains excep- 
tions to the mandatory retirement provisions, to add a new exception 
for employees appointed by the President with the advice and consent 
of the Senate to serve for a definite term of years. 

Separate Statement of Kenneth Gulp Davis 

The theory behind the recommendation is that presidential influence 
on formal adjudication is harmful. Yet no single case was brought to 
the attention of the Conference in which such influence had been found 
to have been harmful. 

Even if the theory could be supported with facts. Congress clearly 
should not act on the recommendation without considering a question 
the Conference did not consider: Which are more important — the 
dozens of cases per year that could be affected by adoption of the 
recommendation, or the tens of thousands per year decided in executive 
departments under cabinet officers who serve at the will of the Presi- 
dent and are therefore subject to direct presidential influence? 

I could join in a recommendation reaching tens of thousands of 
cases and neglecting dozens, but I cannot join in a recommendation 
reaching dozens and neglecting tens of thousajids. 

Furthermore, I think the arrangement Congress has provided for 
the tens of thousands is working satisfactorily, and many other ques- 
tions about the administrative process are far more deserving of 
attention botli b}' tlic Conference and by Congress. 

Recommendation 76-2 

strengthening the infohmational and notice-giving functions of 
the federal register 

(Adopted June 3-4, 1976) 

The primary role of the Federal Register is the publication, as re- 
quired by the Federal Register Act and the Administrative Procedure 
Act, of legal documents that affect people generally, such as descrip- 
tions of agencies' organization and functions, texts of substantive and 
procedural rules, notices of proposed rulemaking, and statements of 
general policy or interpretations of general applicability formulated 
and adopted by agencies. The Office of the Federal Register serves as 
an official depository for the filing of these documents, and their pub- 
lication in the Federal Register provides the public with notice of 
their contents. Paragraphs A and B of the recommendation seek to 
strengthen this informational function of the Federal Register. 

The secondary role of the Federal Register is the publication of no- 
tices pertaining to adjudicatory matters. Statutory requirements and 



OFFICIAL RECOMMENDATIONS 49 

agency practices with respect to the publication of these notices con- 
form to no pattern but vary widely amon^ agencies and among dif- 
ferent types of adjudicatory proceedings. Since the establishment of 
the Federal Eegister, Congress has enacted a considerable number 
of statutes that specifically require agencies to publish in the Federal 
Register notices of applications, hearings, or decisions in adjudicatory 
proceedings. In addition, agencies have often obtained the approval 
of the Director of the Federal Register to publish in the Federal 
Register notices pertaining to adjudicatory matters despite the absence 
of an express publication requirement. Paragraphs C and D of the 
recommendation seek to define and strengthen this notice-giving func- 
tion of the Federal Register. 

Recormnendation 
A. Preservation of Documents in the Code of Federal Regulations 

The Administrative Committee of the Federal Register should 
require each agency to the maximum extent practicable to preserve in 
the Code of Federal Regulations documents of general applicability 
that are published in the Federal Register and are of continuing 
interest to the members of the public. Particularly, actions should be 
taken to the extent practicable in the following areas : 

1. The Administrative Committee should act to preserve in the Code 
of Federal Regulations descriptions of each agency's organization and 
functions required to be published in the Federal Register under sec- 
tions 552(a) (1) (A) and (B) of the Administrative Procedure Act. 
All agencies should inform the public of their organization and func- 
tions by publishing complete and informative descriptions in each 
year's edition of the Code of Federal Regulations. Subsequent changes 
in an agency's description of its organization and functions should 
appear in the Rules and Regulations section of the Federal Register 
where the codification system adopted for use in the Code controls the 
order of publication and provides a useful finding aid for subsequent 
developments. 

2. The Administrative Committee and the agencies should act to 
preserve in the Code of Federal Regulations those statements of basis 
and purpose (or portions thereof) accompanying the publication in the 
Federal Register of newly promulgated rules that are of continuing 
interest to members of the public. If the preservation of an agency's 
basis and purpose statements in successive editions of the Code of 
Federal Regulations is likely to become cumbersome, the texts of the 
statements prepared by that agency during each preceding year should 
be reprinted only once in that year's edition of the Code of Federal 
Regulations, either at the end of the title or chapter assigned to the 
agency or in a special Code volume with statements from other agen- 
cies, so that subscribers to the Code are at least able to preserve the 



50 ADMINISTRATIVE (:0NFERP:NCE OF THE UNITED STATES 

statements in composite, bound form. Additionally, the annual editions 
of the Code of Federal Reg-ulations should supply the Federal Register 
citations to pending rulemaking proceedings that affect present regula- 
tions or add new regulations. 

B. Publication in the Federal Register of Statements of General 
Policij and Interpretations of General Applicability 

Despite the requirement of section 552 (a) (1) (D) of the Administra- 
tive Procedure Act that each agency currently publish in the Federal 
Register for the guidance of the public those "statements of general 
policy or interpretations of general applicability formulated and 
adopted by the agency," surprisingly few such policy statements and 
interpretations are in fact published in the Federal Register. Each 
agency should review its practices and take necessary measures to 
insure the publication in the Federal Register of all agency statements 
of general policy and interpretations of general applicability. In addi- 
tion, when an agency utilizes an adjudicatory opinion or an instruction 
to staff for the purpose of adopting a general policy or interpretation 
of general applicability, it should publish in the Federal Register the 
pertinent portion of the opinion or of the instruction, or it should 
promptly summarize the policy or interpretation in guideline form and 
publish it in the Federal Register. These policy statements and inter- 
pretations should be published in the Rules and Regulations section 
of the Federal Register and should be preserved in the Code of Federal 
Regulations when they are of continuing interest to the public. 

C. Standards for Publication in the Federal Register of Notices Per- 
taining to Adjudicatory Matters 

Congress should consider the following standards in determining 
whether to impose new requirements for the publication of notices per- 
taining to adjudicatory matters and in reviewing existing publication 
requirements. The Director of the Federal Register should also observe 
these standards in exercising his discretionary authority to allow the 
publication in the Federal Register of notices pertaining to adjudica- 
tory matters that are not required by law to be published. In both 
instances agencies should not rely solely on the publication of notices 
in the Federal Register to afford notice to interested persons of adjudi- 
catory matters if other forms of public notice are practicable. 

1. The Federal Register should not routinely be used to publish the 
texts of agency orders and opinions in adjudicatory proceedings or 
notices of those decisions if there is no further opportunity available 
for interested persons to comment or otherwise to participate in the 
proceeding, except when such publication serves a necessary legal 
purpose. Statements of general applicability adopted by an agency 
in an adjudicatory opinion should be published in the Federal Register 



OP^HCIAL RECOMMENDATIONS 51 

in accordance with paragraph B of this recommendation. Supple- 
mentary agency publications that contain the texts of agency orders 
and opinions in adjudicatory proceedings should be listed in the Code 
of Federal Regulations at the head of the applicable title or chapter 
assigned to the agency and should be described in greater detail in the 
agency's regulations published in the code. 

2. The Federal Register should not be used to publish notices of 
applications, hearings, and other adjudicatory matters unless the 
notices are public notices intended to inform interested members of 
the public who are not parties to the proceeding of the opportunity to 
comment or otherwise to participate in the proceeding. In addition, 
specific categories of public notices (for example, notices of applica- 
tions or hearings under a specific statutory provision) should not be 
published if there is no substantial public interest in the proceedings 
or if the publication of the notices in the Federal Register is unlikely 
to inform interested persons about pending adjudicatory proceedings 
of which they would not otherwise receive notice. 

3. The various categories of public notices of each agency should be 
listed and described in detail in the agency's regulations in the Code 
of Federal Regulations. The descriptions should designate which 
public notices appear in the Federal Register and which do not. 

D. Format for Publication in the Federal Register of Notices Per- 
taining to Adjudicatory Matters 

1. The Administrative Committee of the Federal Register should 
act to require that notices pertaining to adjudicatory matters that are 
published in the Federal Register adopt an appropriate public notice 
format. The notice that appears in the Federal Register should briefly 
inform interested persons of the nature of the proceeding, the agency's 
legal authority, the matters of fact and law asserted, and the oppor- 
tunities available to comment or otherwise to participate in the pro- 
ceeding and should designate an agency official interested persons 
may contact for additional information. The published notice should 
not ordinarily contain the text of any agency order or opinion or a 
detailed recitation of the legal or factual contentions of the agency or 
other parties to the proceeding. 

2. If a notice pertaining to an adjudicatory matter is published in the 
Federal Register, it should be publipiied as early in the proceeding as 
practicable (e.g., at the time an application is filed rather than solely 
when the agency orders a hearing on the application). An agency may 
also highlight specific applications or hearings wliere public partici- 
pation is particularly important by publishing notices thereof in the 
Federal Register even though the agency does not publish notices of 
other applications or hearings under the same statutory provision. 



Recommendation 76-3 

procedures in addition to notice and the opportunity for 
comment in informal rulemaking 

(Adopted June 3-4, 1976) 

The Conference's Recommendation 72-5 stated that in rulemaking 
of general applicability im'olving substantive rules "Congress ordi- 
narily should not impose mandatory procedural requirements other 
than those required by 5 U.S.C. § 553," and that "Congress should 
never require trial-type procedures for resolving questions of policy or 
of broad or general fact," Paragraph 5 of the Recommendation recog- 
nized that agencies nevertheless may sometimes appropriately utilize 
such procedures for resolving issues of specific fact, and it counseled 
that in rulemaking proceedings of general applicability "each agency 
should decide in the light of the circumstances of particular proceed- 
ings whether or not to provide procedural protections going beyond" 
the notice-and-comment requirements of section 553, "such as oppor- 
tunity for oral argument, agency consultation with an advisory com- 
mittee, opportunity for parties to comment on each other's written or 
oral submissions, a public-meeting type of hearing, or trial-type hear- 
ing for issues of specific fact." 

The present recommendation enlarges upon paragraph 5 of Recom- 
mendation 72-5 by further specifying for agencj' consideration certain 
procedures going beyond notice-and-comment, and by describing some 
of the "circumstances of particular proceedings" that should move 
agencies to consider such additional procedures. 

The Recommendation grows out of a study of decisions, primarily of 
the Court of Appeals for the District of Columbia Circuit, in which 
rulemaking proceedings have been remanded to agencies for addi- 
tional procedures, and of the responses of the affected agencies. The 
Recommendation implies no view as to whether those decisions were 
authorized by the Constitution or relevant statutes. The Recommenda- 
tion is premised, however, on the view that one can learn from the 
insights of judges, who on the basis of their study of records reflecting 
"the circumstances of particular proceedings," perceived a need for 
procedures in addition to notice and the opportunity for comment, 
and from the experience of agencies required to provide such addi- 
tional procedures. 

Recom/mendation 

1. Agencies should afford interested persons the opportunity to par- 
ticipate as effectively as possible in notice-and-comment rulemaking 
proceedings. Therefore, in order to enlarge the opportunity for public 
participation and increase its effectiveness, agencies in appropriate cir- 
cumstances should utilize procedures such as the following, which go 



beyond a single notice and opportunity to comment and supplement or 
particularize those listed as examples in Recommendation 72-5.^ 

a. Providing from the outset for the possibility of two cycles of 
notice-and-comment (i) when the agency anticipates that the issues 
raised by the rulemaking will be unusually complex, or (ii) when 
it is in the public interest to utilize the initial notice of proposed 
rulemaking to give only a general description of the subjects and 
issues involved in the proceeding and to invite public comment upon 
those subjects and issues ; provided that at the conclusion of the first 
cycle the agency may take any action within its powers. In addition 
an agency may at any time announce, as by an "advance notice of 
proposed rulemaking", that it intends to issue a notice of rulemaking, 
and in such announcement solicit comments and suggestions with re- 
spect to the contents of such notice. 

b. Providing for a second cycle of notice-and-comment or by notice 
providing an opportunity for additional comment in any proceeding 
when comments filed in the proceeding, or the agency's response to 
such comments, present new and important issues or serious con- 
flicts of data. An agency should consider the desirability of responding 
to comments as a means of exposing the agency's tentative views in 
order to enhance the usefulness of further comments by the public. 

c. Incorporating in the notice of a notice-and-comment cycle a sum- 
mation of the agency's current attitudes toward critical issues in the 
proceeding and a description of the data on which the agency relies, 
indicating where the data may be inspected. 

d. Providing an explanation of the tests and other procedures fol- 
lowed by the agency and the significance the agency has attached 
to them, and allowing opportunity for comment thereon.^ 

e. Holding conferences open to the public, on adequate notice, when 
an opportunity for all interested groups (such as agency staff, directly 
affected persons, agency policymakers, and public interest groups) 
to question one another would be effective in resolving, narrowing 
or clarifying the disputed issues. 

f . Hearing argument and other oral presentation, when the presiding 
agency official or officials may ask questions, including questions sub- 
mitted by interested persons. 

Important circumstances tending to suggest the desirability of 
using such procedural devices are that (1) the scientific, technical, 
or other data relevant to the proposed rule are complex; (2) the 
problem posed is so open-ended that an agency may profit from re- 



^ This Recommendation Is addressed solely to agency process prior to the final promulga- 
tion of a rule. In addition, the agency statement of the basis and purpose of the rule 
incorporated In the rule when It Is adopted should be clear and complete and should 
fully and fairly Inform the public as to the basis and purpose of the rule. 

'This may be accomplished, for example, In a public notice or by technical reports Issued 
or relied upon by the agency and Incorporated by reference in the proceeding. 



^.v.iUf'r- 



ceiving diverse public views before publishing a proposed rule for 
final comment ; and (3) the costs that errors in the rule may impose, 
including health, welfare, and environmental losses imposed on the 
public and pecuniary expenses imposed on the affected industries and 
consumers of their products, are significant. 

2. In rulemaking proceedings subject to notice-and-comment re- 
quirements agencies should give interested persons an opportunity 
to indicate issues of specific fact as to which they contend that cross- 
examination should be considered by the agency to be appropriate. 
Cross-examination, where permitted, should be strictly limited as to 
subject and duration. 

3. An agency should employ any of the devices specified in para- 
graph 1 or permit cross-examination only to the extent that it be- 
lieves that the anticipated costs (including those related to increasing 
the time involved and the deployment of additional agency resources) 
are offset by anticipated gains in the quality of the rule and in the 
extent to which the rulemaking procedure will be perceived as having 
been fair. 

Recommexdatiox 76-4 

judicial review under the cleax air act axd federal water 
pollutiox control act 

(Adopted December 9-10, 1976) 

The Congress has enacted provisions for judicial review in the Clean 
Air Act and the Federal Water Pollution Control Act (FWPCA) 
that are in some respects inconsistent, incomplete, ambiguous, and 
unsound. 

Courts have sometimes felt constrained to stretch these statutes to 
achieve sensible results. In other instances, courts seem to have ignored 
sensible general Congressional direction in an attempt to do justice in 
particular cases. On yet other occasions courts have felt compelled by 
unclear provisions to reach undesirable results that Congress probably 
did not intend. 

Experience under the two Acts has highlighted a variety of problems 
in the interpretation and application of the judicial review provisions, 
all of which are likely to be addressed by Congress in the near future. 

This series of recommendations urges that, when Congress recon- 
siders the judicial review provisions of the principal pollution statutes, 
it rationalize, alter, and clarify them, guided especially by the prin- 
ciple that jurisdictional provisions should draw bright lines to mini- 
mize the waste and expense of litigation over whether a case has 
been brought in the right court. One recommendation is addressed to 
the Judicial Conference and calls upon the courts, pending Congres- 



OFFICIAL RECOMMENDATIONS 55 

sional action to clarify their powers, to utilize their discretion to trans- 
fer judicial review proceedings where transfer will avoid undue dupli- 
cation of litigation. 

More specifically, the Conference has in view these considerations : 

1. Section 509(b) of the FWPCA provides that all standards pro- 
mulgated under it by the Environmental Protection Agency, includ- 
ing national standards, are to be reviewed in the United States Court 
of Appeals for a circuit in which the petitioner resides or transacts 
business. Under section 307(b) of the Clean Air Act, on the other 
hand, certain nationally applicable standards are to be reviewed only 
in the Court of Appeals for the District of Columbia Circuit, but the 
EPA's actions in approving or promulgating State implementation 
plans are reviewable only "in the United States Court of Appeals for 
the appropriate circuit." Thus the FWPCA provides for a decen- 
tralized review of national standards, whereas the Clean Air Act re- 
quires that analogous standards be reviewed only in the D.C. Circuit. 
This inconsistency in approach should be resolved ; the advantages of 
expeditious and authoritative review of all national standards in the 
D.C. Circuit suggests that it is the FWPCA's venue provision which 
should be amended. All national standards under the FWPCA should 
be made reviewable in the D.C. Circuit. Review of all other regula- 
tions, standards, and determinations that are reviewable in the courts 
of appeals under the FWPCA should be in the circuit containing the 
affected State or facility. These amendments would entirely sup- 
plant the present provisions for review in the circuit in which the pe- 
titioner resides or transacts business. 

The Clean Air Act's specification of "appropriate circuit" as the 
venue for review of State implementation plan approvals has also 
created uncertainties, especially when several plan approvals are chal- 
lenged on identical grounds. Although a perfect resolution is impos- 
sible, an amendment, clarifying that the appropriate circuit is the 
one containing the State whose plan is challenged, would eliminate 
much of the prospect of threshold litigation over the question of which 
is the appropriate circuit, and would also avoid the splitting of cases 
into two different forums whenever local and national issues are pres- 
ent in the same case. The possibility of undue duplication of proceed- 
ings that might result can be met by increasing the flexibility of avail- 
able transfer provisions to remove doubts about the authority of any 
court of appeals to transfer a case to any other court of appeals. 

2. Section 304 of the Clean Air Act and section 505 of the FWPCA 
authorize citizen suits in the district courts to require the EPA Ad- 
ministrator to perform "any act or duty under this Act which is not 
discretionary." Some district courts have accepted jurisdiction under 
section 304 over cases that amount to challenges to the Administra- 
tor's approval and promulgation of State implementation plans, de- 
spite the provision of section 307 for exclusive jurisdiction in the 



56 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

courts of appeals to review such action. The citizen-suit provisions 
should not furnish an alternative or premature method of review of 
questions that can be raised by direct review of the EPA's actions in 
the courts of appeals. 

The proper scope of the present citizen-suit provisions is especially 
unclear in the context of standard-setting, where the line between 
failure to act and failure to act properly is dim. The difficulty of draw- 
ing such a distinction is ample reason for giving the courts of appeals 
exclusive jurisdiction of actions to compel or to postpone the issuance 
of regulations whose validity would properly be determined in a 
court of appeals. It is recognized that in its review of such issues a 
court of appeals might conclude that the administrative record re- 
quires amplification. Since courts of appeals normally do not hold evi- 
dentiary proceedings, provision should be made for prior resort or 
remand to the EPA (or, if that is inappropriate, to the district court) 
to meet that need. 

To prevent unfairness from a litigant's choice of the wrong court, 
Congress should provide for transfer between district courts and 
courts of appeals of petitions and complaints filed under the Acts. The 
Court of Claims transfer provision provides a good model. 

3. Although both Acts provided expressly for review in the courts of 
appeals and for citizen suits in the district courts, it remains possible 
in some circumstances to obtain nonstatutory review under general 
Federal question jurisdictional statutes. But the citizen-suit provisions 
of both Acts require the plaintiff to give the EPA 60 days' notice of the 
intended district court action. Congress should make clear that where 
a nonstatutory review action is filed alleging grounds that correspond 
to those appropriate for the filing of an action under such citizen- 
suit provisions, failure to comply with the notice requirements of those 
provisions will require a dismissal of the case. 

4. The Clean Air Act and the FWPCA provide that certain regu- 
lations reviewable by petition to the courts of appeals "shall not be 
subject to judicial review in civil or criminal proceedings for enforce- 
ment." Moreover, challenges to the validity of regulations must be 
made in the court of appeals within 30 days (air) or 90 days (water) 
after promulgation, unless the challenge is based "solely on grounds 
arising after" the statutory period. The express preclusion of review 
at the enforcement stage creates a highly unusual and unnecessarily 
harsh restriction on the right to challenge the validity of a regulation 
to which one is subject. Congress should amend the Acts to allow the 
validity of a regulation to be challenged in defense to an enforcement 
proceeding. It should also amend the Clean Air Act to extend the 
time limit for filing petitions for review in the court of appeals to 
60 days and, for consistency, amend the FWPCA to reduce the 90- 
day period for filing a petition thereunder to 60 days. Finally, the 



OFFICIAL RECOMMENDATIONS 57 

time limits in both Acts should be made inapplicable where the peti- 
tioner can show reasonable grounds for failure to file a timely petition. 

5. Not every action of the EPA under the Clean Air Act or the 
FWPCA is made reviewable in the courts of appeals. Some of the 
omissions appear to be inconsistent with the general statutory plan, 
and corrective amendments are desirable. 

6. Each of the four judicial review and citizen-suit provisions in 
the Clean Air Act and the FWPCA presents a different standard for 
who may petition for review or sue. This leads to undesirable eon- 
fusion and inconsistency in the administration of the Acts. 

Reconmiendation 

A. Venue in the Courts of Appeals 

1. Congress should provide for centralized review of national stand- 
ards under the FWPCA, as is now provided under the Clean Air Act, 
by amending section 509(b) (33 U.S.C. § 1369(b) ) to provide for the 
review of all such national standards in the Court of Appeals for the 
District of Columbia Circuit. 

2. Congress should further amend section 509(b) of the FWPCA 
to provide that review of regulations, standards, or determinations 
affecting single States or facilities be had in the circuit containing 
the State or facility. 

3. Congress should amend section 307(b) of the Clean Air Act (42 
U.S.C. § 1857h-5(b) ) to make explicit that the Administrator's action 
in approving or promulgating State implementation plans is review- 
able in the circuit containing the State whose plan is challenged. 

4. Courts of appeals, when reviewing cases arising under the Clean 
Air Act or FWPCA, should utilize existing transfer powers to avoid 
undue duplication of proceedings, and Congress should amend the acts 
or the transfer statute (28 U.S.C. § 2112(a) ) to remove doubts about 
the authority of any court of appeals to transfer such cases to any other 
court of appeals to avoid undue duplication and in the interest of the 
administration of justice. 

B. Choice between District Court and Court of Appeals for Review 

1. Congress should amend the citizen-suit provisions of the Clean Air 
Act (section 304, 42 U.S.C. § 1857h-2) and FWPCA (section 505, 33 
U.S.C. § 1365) to make clear that, insofar as suits against the Admin- 
istrator of the EPA are concerned, these sections do not provide an al- 
ternative or premature method of review of questions that can be 
raised under the sections that provide for direct review of the EPA's 
actions in the courts of appeals (section 307(b), 42 U.S.C. 
§ 1857h-5(b) ; section 509, 33 U.S.C. § 1369). 



58 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

2. Congress should amend the Clean Air Act and FWPCA to pro- 
vide that courts of appeals have exclusive jurisdiction of actions to 
compel or to postpone the issuance or revision of regulations whose va- 
lidity is to be determined in a court of appeals. The amendments should 
provide that where there is need for the development of a factual rec- 
ord, prior resort or remand shall be made to the EPA, or, if that is in- 
appropriate, to the district court. 

3. Congress should i^rovide, by analogy to 28 U.S.C. § 1506, for 
transfer between courts of appeals and district courts Avhen a proceed- 
ing to review EPA action under the Clean Air Act or FWPCA is filed 
in the wrong forum. 

C. Limitation of Nonstatutory Review 

Congress should amend the statutes to make clear that when a non- 
statutory review action is filed alleging grounds that correspond to 
those appropriate for the filing of a citizen suit under section 304 of 
the Clean Air Act (42 U.S.C. § 1857h-2) or section 505 of the FWPCA 
(33 U.S.C. § 1365), failure to comply with the notice requirements of 
those sections will require a dismissal of the case. 

D. Raising Defenses at the Enforcement Stage 

1. Congress should amend the Clean Air Act and FWPCA to permit 
the validity of a regulation to be challenged in defense to an enforce- 
ment proceeding. 

2. Congress should amend section 307(b) of the Clean Air Act (42 
U.S.C. § 1857h-5(b)) and section 509(b) of the FWPCA (33 U.S.C. 
§ 1369 (b) ) to prescribe 60 days as the period within which, under both 
statutes, a petition for review must be filed in the courts of appeals. 

3. Congress should amend the Clean Air Act and FWPCA to ensure 
that petitions for review of regulations may be filed after the expira- 
tion of the time limits of sections 307(b) and 500(b), when the peti- 
tioner can show a reasonable ground for failure to file a timely petition. 

E. Actions Subject to Court of Appeals Review 

1. Congress should amend section 509(b) of the FWPCA (33 U.S.C. 
§ 1369 (b) ) to make clear that the following actions by the EPA are re- 
viewable in the courts of appeals : 

a. Promulgation or approval of water-quality standards under 
section 303 (33 U.S.C. § 1313) . 

b. Promulgation of effluent guidelines under section 304 (33 
U.S.C. §1314). 

c. Promulgation of regulations governing the discharge of oil 
or hazardous substances under section 311(b) (33 U.S.C. 
§ 1321(b)). 



OFFICIAL RECOMMENDATIONS 59 

d. Promulgation of standards for marine sanitation devices un- 
der section 312 (33 U.S.C. § 1322) or determinations that a state 
may completely prohibit the discharge from all vessels of any 
sewage under section 312(f) (33 U.S.C. § 1322(f)). 
2. Congress should amend the Clean Air Act to make those new car 
emission standards not now reviewable under section 307 (b) (42 U.S.C. 
§ 1857h-5 (b) ) , reviewable in the comis of appeals. 

F. Stariding 

Congress should adopt a single test of standing to govern all pro- 
ceedings for judicial review under the Clean Air Act and FWPCA. 

Separate Statement of G. William Frick 

( 1 ) Recommendation A. 2. should be amended to provide that where 
"national issues" are involved they should be reviewed in the D.C. 
Circuit. Recommendation A. 2. should be amended in the same fashion. 

Cases involving permits and pei-mit programs under the FWPCA 
sometimes involve generic issues that apply to EPA's actions nation- 
wide. For essentially the reasons discussed in our comments on recom- 
mendation A.3., below, we believe such issues should be reviewed in the 
D.C. Circuit. This result could be specified, without disturbing the 
general thrust of the Recommendation, by amending section 509 of the 
FWPCA as suggested in our comments of November 12, 1976. 

Although approval and promulgation of State implementation plans 
(SIP's) under the Clean Air Act usually involve issues loeculiar to 
the affected States, such actions sometimes involve generic determina- 
tions of natiouAvide scope or effect. Examples include EPA's granting 
of two-year extensions of the date for attainment of national ambient 
air quality standards in a number of metropolitan areas ^ and its 
promulgation of generic regulations (applicable to all States) that 
require prevention of significant deterioration of air quality (40 CFR 
52.21). We view such actions as virtually identical to promulgation of 
"national standards'','-^ as to which recommendation A.l. expresses a 
prference for review in the D.C. Circuit, 

Under the existing law, it is possible to argue that the D.C. Circuit 
is the "appropriate circuit" for review of "national" SIP issues, and 
three courts of appeals have so held."* Recommendation A. 3., however, 
would provide that such issues, together with all other SIP issues, 
must be in the local circuit. Although recommendation xV,4. would 
proniote transfer to avoid "undue duplication of proceedings", it 



1 See NRDC v. EPA, 475 F. 2d 068 (D.C. Clr. 197.3). 

*As with national standards. Kueh actions typically Involve establishment or application 
of uniform principles for all States, arc taken on a single administrative record, and do 
not Involve factual (|iiestions unique to particular ceopraphical areas. 

3 Dayton Power & Lieht Co. v. EPA, 520 F. 2d 70.3. 706-07 (6th Clr. 1975) (regulations 
for prevention of sifrnificant deterioration) : NRDC v. EPA. 475 F. 2d 968. 969-70 (D.C. 
Clr. 1973) f two-year extensions and similar Issues) ; NRDC v. EPA, 465 F 2d 492 494 
(IstCIr. 1972) (same). 



60 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

would provide no basis for arguing that the D.C. Circuit is the appro- 
priate transferee forum. 

As indicated by Professor Currie in his report, Congress intended 
review in the D.C. Circuit of "matters on which national uniformity 
is desirable.'- Among the reasons for this are the D.C. Circuit's obvious 
expertise in administrative law matters and its sensitivity to Congres- 
sional mandates. In addition, the D.C. Circuit has become thoroughly 
familiar with the Clean Air Act — a very complex statute — and with 
its equally complex legislative history. We believe it makes sense to 
centralize review of "national" SIP issues in the D.C. Circuit, taking 
advantage of its administrative law expertise and facilitating an 
orderly development of the basic law under the Act, rather than to 
have such issues decided separately by a number of courts, some of 
which would probably lack frequent exposure to the Act and its legis- 
lative history. Moreover, the validity of a nationally applicable regula- 
tion will not turn on the particulars of its impacts within a given 
Circuit. 

(2) Recommendation D.I., which would allow the challenge of 
validity of regulations in enforcement proceedings, should be deleted. 

The "legislative history" of this recommendation suggests that it is 
inspired in part by a concern that the time limits for filing of petitions 
for review of the validity of regulations are too short, and in part by 
a concern that any time limit may unreasonably constrain the oppor- 
tunity for such review. 

As to the first factor we would much prefer the solution offered by 
Recommendation D.2. As to the second, we oppose the recommendation 
on several grounds. Permitting challenges to validity in enforcement 
would leave open the question of validity indefinitely, notwithstanding 
Congress' intent to have it decided expeditiously ; ' would require EPA 
to retain its often immense records indefinitely ; would mean district 
court rather than court of appeals review of validity, notwithstanding 
the clear intent of Congress; and might very well lead to conflicting 
results, with resolution of conflicts (if at all) only after review by the 
courts of appeals and the Supreme Court. In our view, facial validity 
need be determined only once and should be determined expeditiously ; 
there are other mechanisms for relief based on factors peculiar to 
individual sources (see comments on recommendation D.3.), and it 
makes no sense to require every district court presented with the issue 
of validity to engage in duplicative review of the often immense 
records involved. 



♦See Kennecott Copper Corp. v. EPA, 462 F. 2d 846, 849 & nn. 14-1.5 (D.C. Clr. 1972) 
Expeditious resolution of SIP Issues Is particularly important because Conpress mandated 
attainment of the health-protective ambient air quality standards (via SIP's) by a time 
certain, regardless of economic or technical feasibility. 



OFFICIAL RECOMMENDATIONS 61 

The Recommendation glosses over that fact that State implementa- 
tion plans, which have and will continue to make up the vast majority 
of onerous air pollution requirements, can be challenged facially and 
on grounds of infeasibility through administrative and judicial review 
channels in the States.'^ 

Finally, as Professor Walter Gellhorn observed at the Plenary Ses- 
sion, there is an inherent contradiction between Recommendations D.l. 
and D.3., viz, the argument 1^ for extending the deadlines for obtain- 
ing review while at the same time espousing that there should be no 
deadline for obtaining review. That the federal courts involved are 
at different levels does not cure this contradiction. 

(3) Recommendation D.3., which would allow late filings of peti- 
tions for review upon reasonable grounds shown, should be deleted. 

The "legislative history" of this recommendation suggests a number 
of concerns that may have prompted it : (a) the problem of short time 
limits; (b) the problem of persons who fail to file through careless- 
ness; (c) lack of opportunity for consideration of individual factors 
that might affect validity; and (d) the problem of persons who are 
unaffected by a regulation until after the deadline for filing has passed. 
My comments are as follows : 

(a) Short time limits. We prefer Recommendation D.2. as pro- 
viding a more direct solution to this problem, if it is thought to 
be a problem. Protection of one's rights need not await detailed 
analysis of what EPA has actually done; common practice is to 
file one-paragraph petitions alleging that EPA's action was arbi- 
trary or capricious, or similarly general grounds. 

(b) Carelessness. The industries we regulate generally submit 
extensive comments on proposed regulations, sometimes "lobby" 
the agency extensively, often mount well-coordinated attacks on 
final regulations in court, and seem to follow the development of 
regulations rather well. And, even before publication of proposals 
in the Federal Register, they receive notice through EPA's gather- 
ing of supporting data from them, through trade associations, 
through industry representatives on EPA advisory committees, 
or during pre-publication review by other federal agencies. We 
believe the public interest in early resolution of validity (clearly 
intended by Congress) should outweigh the interests of those who 
fail to file timely petitions through carelessness. 

(c) Individual factors that might affect validity. As Professor 
Currie seems to acknowledge in his report, individual factors are 
often if not always irrelevant to the validity of EPA regulations. 
Those cited as examples do not appear to be grounds for challenge 
of SIP approvals," for example, or of national standards adopted 
under section 111 or 112 of the Clean Air Act (42 U.S.C. 1857c-6, 

» See Union Electric Co. v. EPA, 96. S. Ct. 2518 (1976). 
" See Union Electric Co. v. EPA, supra. 



62 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

1857c-7). Relief based on such factors may be available through 
a variety of mechanisms/ but they do not go to the validity of 
the regulations. 

(d) Previously unaffected parties. In our view, persons who 
choose to do business in a regulated industry (or to expand into a 
geographical area subject to controls) after the establishment of 
applicable regulations take the business (or the area) as they find 
it. If a company invents a new process that presents particular 
problems under an applicable regulation, it may petition for 
revision of the regulation. 
Finally, we note that this recommendation would leave the question 

of validity open indefinitely, with all the problems that would entail 

(see discussion of Recommendation D.I.). 

Recommendation 76-5 

interpretive rules of general applicability and statements of 
general policy 

(Adopted December 9-10, 1976) 

Agencies often explain their view of the meaning of statutes or 
rules by issuing interpretive rules of general applicability, and agencies 
indicate how they will exercise discretion by announcing statements of 
general policy. The Administrative Procedure Act requires that these 
interpretive rules and policy statements be published in the Federal 
Register. But the Act does not require that interested persons be given 
advance notice and opportunity to comment upon interpretive rules 
and policy declarations. Courts, however, have occasionally imposed 
that requirement. 

At times policy statements and interpretive rules are barely dis- 
tinguishable from substantive rules for which notice and comment 
is required. For that and other reasons many agencies have often 
utilized the notice-and-comment procedures set forth in section 553 
of the Act, without regard to whether their pronouncements fall into 
one category or another. This is, in general, beneficial to both the agen- 
cies and potentially affected elements of the public. Providing op- 
portunity for comment upon interpretive rules and policy statements 
of general applicability, sometimes before and sometimes after their 
adoption, makes for greater confidence in and broader acceptance of 
the ultimate agency judgments. The following recommendations look 
toward wider voluntary adoption of such procedures by the agencies. 



' Under the Clean Air Act, for example, relief may be available by way of SIP revisions 
(Includlnp variances) approved or promulgated by EPA, postponements of SIP require- 
ments under 42 U.S.C. 18.57c-5(f). enforcement orders fixing a "reasonable time" for 
compliance (42 U.S.C. 1857-c-8(a) (4). equitable relief provided by court order In enforce- 
ment proceedings (see 42 U.S.C. 1857c-8(b)). waivers or exemptions under 42 U.S.C. 
1857C-7, or petition for revision of any applicable regulation. 



OFFICIAL RECOMMENDATIONS 63 

Nothing here proposed would in any event alter the existing provisions of 
Administrative Procedure Act section 553 (e), allowing any person to 
petition at any time for the amendment or repeal of a rule, including an 
interpretive rule or a statement of general policy. Moreover, the recom- 
mended procedures are not intended to apply to interpretations or 
pohcies set forth in opinions in formal or informal adjudications. 

RECOMMENDATION 

1. Before an agency issues, amends, or repeals an interpretive rule of 
general appUcability or a statement of general policy which is likely to 
have substantial impact on the public, the agency normally should utilize 
the procedures set forth in Administrative Procedure Act subsections 
553 (b) and (c), by publishing the proposed interpretive rule or policy 
statement in the Federal Register, with a concise statement of its basis 
and purpose and an invitation to interested persons to submit written 
comments, with or without opportunity for oral presentation. If it is 
impracticable, unnecessary, or contrary to the public interest to use such 
procedures the agency should so state in the interpretive rule or policy 
statement, with a brief statement of the reasons therefor. 

2. Where there has been no pre-promulgation notice and opportunity 
for comment, the publication of an interpretive rule of general applicabil- 
ity or a statement of general policy, even one made effective immediately, 
should include a statement of its basis and purpose and an invitation to 
interested persons to submit written comments, with or without op- 
portunity for oral presentation, within a following period of not less than 
30 days. The agency should evaluate the rule or statement in the light of 
comments received. Not later than 60 days after the close of the comment 
period, the agency should indicate in the Federal Register its adherence 
to or alteration of its previous action, responding as may be appropriate 
to significant comments received. An agency may omit these post- 
adoption comment procedures when it incorporates in the interpretive 
rule or policy statement a declaration, with a brief statement of reasons, 
that such procedures would serve no public interest or would be so 
burdensome as to outweigh any foreseeable gain. 



Recommendation 77-1 

legislative veto of administrative regulations 

(Adopted September 15-16, 1977) 

Congress has by statute occasionally required that certain agency 
actions be subject to Congressional approval or disapproval before they 



64 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

became effective. Several proposals have now been advanced which 
would apply this procedure to all substantive rules issued pursuant to the 
notice-and-comment procedures of 5 U.S. C. §553 (which are not subject 
to 5 U.S. C. §§556 and 557). These proposals typically would provide that 
if either house of Congress disapproved a proposed rule within a specified 
period, such as 60 days, it would not take effect. 

The Conference believes that this kind of legislative veto would not 
further the ability of Congress to direct agency policy; moreover, it would 
bring about undesirable changes in the rulemaking process and in rela- 
tionships among the agencies. Congress, and the courts. 

1. Agencies. Legislative veto proposals contemplate postponing the 
effective date of most agency rules for two months beyond the present 
statutory period of thirty days that must elapse between their publication 
in the Federal Register and their taking effect. This additional period is 
prescribed so that Congress may have opportunity to exercise the power 
of review. The volume of existing agency rulemaking and the technical or 
noncontroversial nature of many rules suggest, however, that few pro- 
posed rules would in fact receive specific Congressional attention. 
Nevertheless the operation of the great mass of rules, whether or not 
actually considered by Congress, would be postponed without cor- 
responding benefit and often with unfortunate public consequences. In 
instances when Congress did undertake review, it would risk engaging in 
piecemeal examination of particular rules, in isolation from an agency's 
program as a whole, and without benefit of the experience and specialized 
knowledge that had shaped the elements of that program. Of great 
concern is the possibility that Congressional review of administrative 
agencies' rules would significantly diminish the importance of the pro- 
cedures now prescribed by law to assure public participation in 
rulemaking. Rules that survive active legislative review are likely to be 
based upon negotiations with Congressional units rather than upon the 
information, expression of opinion, research materials, and background 
experience that shaped the agency's policy. 

2, Congress. Legislative review of substantive rules would increase 
the workload of Congress substantially. Review of complex, technical 
rules would be difficult, time consuming, and often impracticable. Yet, in 
the belief that each agency's work product would have to undergo later 
scrutiny by Congress or its committee staffs. Congress might be more 
ready even than at present to delegate power in broad terms and to avoid 
specificity and precision in formulating legislative policies that guide 
agency discretion. Piecemeal review, moreover, might create a mislead- 
ing impression that Congress has endorsed by implication whatever it has 
not explicitly disapproved. Were that impression to become widespread, 
Congress might be deemed to have accepted a responsibility of unfore- 
seen dimensions. 



OFFICIAL RECOMMENDATIONS 65 

3. Courts. Aprocedurefor Congressional review of agency rules may 
also imply legislative ratification of rules not disapproved by Congress. If 
legislative approval is inferred from inaction by Congress under the 
proposed procedure, then the scope of judicial review may be reduced 
without provision of an adequate substitute. Existing constraints on 
agency rulemaking discretion would therefore be lessened in a manner 
not intended by Congress. 

The objectives of a generic requirement of legislative review of ad- 
ministrative rules can be realized by careful delineations of basic Con- 
gressional policy, by particularized statutes addressed to specific issues, 
and by Congressional hearings focused on review of agency policy rather 
than on details. Careful attention to appointments and appropriations 
constitutes a further effective means of maintaining Congressional 
oversight of agencies' use of delegated power. 

RECOMMENDATION 

The Conference urges that Congress should not, in general legislation 
or as a routine practice, provide for prior submission of agency rules for 
Congressional review and possible veto. 



Recommendation 77-2 

judicial review of customs service actions 

(Adopted September 15-16, 1977) 

A. Jurisdiction and Powers of the Customs Court 

The Customs Court has exclusive jurisdiction to review decisions of the 
Customs Service (1) denying protests of importers relating to certain 
enumerated matters and (2) rejecting petitions of United States manu- 
facturers, producers or wholesalers to challenge certain actions taken 
with respect to merchandise imported by others. Actions of the Customs 
Service suspending or revoking customs brokers' licenses are reviewable, 
by statute, in the courts of appeals.* There are other actions of the 
Customs Service that are administratively final but for which no specific 
statutory provision for review has been made. These include decisions 
made by the Service to suspend or discontinue permits for immediate 
delivery of merchandise as well as decisions to exclude certain types of 



' The Conference has not studied the advisability of a change in the reviewing forum for such action. Nor does the 
Conference intend that the current method of reviewing personnel actions of the Customs Service or its determinations 
under the Freedom of Information Act or like statutes be disturbed. 



66 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

merchandise from entry. Such actions are now reviewable, if at all, in the 
district courts pursuant to their general or special jurisdiction. 

Moreover, the Customs Court does not have power at present to 
"compel agency action unlawfully withheld or unreasonably delayed," as 
can district courts under the APA, 5 U.S.C. §706(1). The Customs 
Service sometimes fails to act on significant matters for such extended 
periods that its inaction may amount to agency action, as defined by 5 
U.S.C. §551(13) to include "failure to act." An example is the failure or 
refusal of the Service to complete the final assessment of duties payable 
on an importation. Finally, the Customs Court has no power at present to 
provide relief until after the protest or petition process has run its course 
even though the Customs Service has taken action with such immediate 
and drastic impact on a person that a district court considering compara- 
ble action of another agency would treat it as final for purposes of review. 
The recommendation would provide for review by the Customs Court of 
the final actions and failures to act just described. 

Decisions to exclude merchandise may be made either by the Customs 
Service or another agency, such as the Food and Drug Administration. 
All exclusion decisions pursuant to a customs law (i.e., a law appHcable 
only to imported merchandise, usually codified in Title 19 of the United 
States Code), whether made by the Customs Service or some other 
agency, are now reviewable in the Customs Court. This review would be 
unaffected by the recommendation. Exclusion decisions under a law that 
is not a customs law are never reviewed in the Customs Court. When such 
an exclusion decision is made by an agency other than the Customs 
Service, the Customs Court does not, and under the recommendation 
would not, review the decision. However, when such an exclusion deci- 
sion is made by the Customs Service, the recommendation would give the 
Customs Court exclusive jurisdiction to review it. 

The Customs Court has sometimes been said not to have "equity 
powers." What is meant by this is not clear, but the recommendation 
would give the Customs Court all powers, injunctive and other, of the 
district courts. 

The Customs Court is unique among Article III courts in being subject 
to a requirement that not more than five of its nine judges be appointed 
from the same political party and in having a chief judge selected from 
time to time by the President. These requirements, appropriate perhaps 
for multi-member administrative agencies, are not consonant with the 
Article III judicial role of the Customs Court, especially as that role 
would be expanded by these recommendations. 

1. JURISDICTION WITHOUT A PROTEST OR PETITION 

Congress should amend 28 U.S.C. §1582 to broaden the jurisdiction of 
the Customs Court by giving the court exclusive jurisdiction of any civil 



OFFICIAL RECOMMENDATIONS 67 

action brought to challenge final agency action (as defined in the Ad- 
ministrative Procedure Act) of the Customs Service except (1) action 
specifically subject to review in another court and (2) action pertaining to 
the exclusion of merchandise, under a law that is not a customs law, and 
taken by the Customs Service on the request or at the direction of a court 
or another federal agency. 

2. REMEDIAL POWERS 

Congress should amend 28 U.S. C. §1581 to confer upon the Customs 
Court in respect of actions properly pending before it the remedial 
powers of a United States district court. 

3. POLITICAL AFFILIATION OF COURT APPOINTEES AND 
SELECTION OF CHIEF JUDGE 

Congress should amend 28 U.S.C. §251 to delete the requirement that 
not more than five of the nine judges of the Customs Court be appointed 
from the same political party and to provide that the chief judge is 
appointed by the President with the advice and consent of the Senate, as 
in the case of the Court of Claims and the Court of Customs and Patent 
Appeals. 

B. Standiyig to Seek Administrative and Judicial Review 

Under Section 516 of the Tariff Act of 1930, 19 U.S.C. §1516, an 
"American manufacturer, producer, or wholesaler" may ask for and 
receive information on the duty imposed on imported merchandise of a 
kind manufactured, produced or dealt in by him and, thereafter, contest 
the appraised value of, classification of, or the rate of duty assessed upon, 
that merchandise by petition to the Customs Service. As stated under 
heading A, a decision concerning such a petition may be reviewed in the 
Customs Court. The recommendation is that Congress consider 
broadening the category of persons entitled to seek this sort of ad- 
ministrative relief and, thereafter, review in the Customs Court to in- 
clude all persons adversely affected by an incorrect determination by the 
Customs Service. The Conference believes that the category of persons 
eligible to challenge such determinations by the Customs Service should 
thus conform with modern administrative practice, unless Congress 
determines that overriding considerations of economic policy make this 
undesirable. 

Only the importer of excluded merchandise may now protest within the 
Customs Service the exclusion of merchandise and have denial of that 
protest reviewed by the Customs Court. The recommendation con- 
templates a broadening of the standing provision to enable any adversely 
affected person to seek administrative and judicial review of action either 
to exclude or to admit merchandise (unless the action is taken under a law 



68 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

that is not a customs law upon the request or at the direction of a court or 
another agency). 

Under A(l) final actions of the Customs Service other than the denial of 
protests or petitions relating to classification, appraisal, duty and ad- 
mission of merchandise, such as the suspension of immediate delivery 
permits, would be subject to review in the Customs Court. The recom- 
mendation contemplates conferring upon any adversely affected person 
who has exhausted his administrative remedies standing to seek review 
of such actions. The recommendation does not specify what procedures 
must be exhausted. 

1. DECISIONS CONCERNING DUTIES 

Congress should consider amending Section 516 of the Tariff Act of 
1930, 19 U.S.C. §1516, to allow any person adversely affected by an 
incorrect determination of the appraised value of, classification of, or rate 
of duty assessed upon, imported merchandise to obtain from the Customs 
Service information concerning such appraisal, classification or rate and 
to petition for a change. Denials of such petitions should be reviewable in 
the Customs Court. 

2. EXCLUSION CASES 

Congress should consider enacting a new provision giving any person 
adversely affected by an action of the Customs Service, concerning 
merchandise that is, or should be, excluded from entry or delivery, a 
means of seeking administrative review of such action, with subsequent 
review in the Customs Court. Such a procedure should not be available to 
challenge action pertaining to the exclusion of merchandise, under a law 
that is not a customs law, and taken by the Customs Service on the 
request or at the direction of a court or another federal agency. 

3. OTHER ACTIONS 

If Congress broadens the jurisdiction of the Customs Court as recom- 
mended in A(l), it should also consider providing that actions within the 
broadened jurisdiction may be brought by any adversely affected person 
who has exhausted his administrative remedies. 

C Burden of Proof in the Customs Court 

The Customs Court operates under a statute that estabhshes a 
presumption that a Customs Service decision under review is correct and 
places upon a party seeking review the burden of proving the decision 
incorrect. Trial in the Customs Court is had on a record made in the court 
although 28 U.S.C. §2632(f) provides that, upon the service of a sum- 
mons, the Customs Service is to transmit certain documents underlying 
the Customs Service decision to the court "as part of the official record of 



OFFICIAL RECOMMENDATIONS 69 

the civil action." The Customs Court and the Court of Customs and 
Patent Appeals have inferred from the statute a further requirement, 
that in order to prevail the party seeking review must prove, in addition 
to the incorrectness of the agency's decision, what the correct decision 
should be. The recommendation would do away with that unorthodox 
further requirement and make Customs Court review of Customs Serv- 
ice actions conform in this respect with the review of actions of other 
agencies by other courts. The mode of review would continue to be a de 
novo trial (in the sense indicated above), which is considered appropriate 
because of the high degree of informality of most Customs Service 
procedures. 

1. ELIMINATION OF THE PLAINTIFF'S DOUBLE BURDEN 

Congress should amend 28 U.S.C. §2635(a) to revise the Customs 
Court's standard of review in the following way: The presumption of 
correctness of Customs Service decisions and the imposition upon a party 
challenging a decision the burden of proving otherwise would be retained, 
but an additional requirement read into the statute by the Customs Court 
and the Court of Customs and Patent Appeals would be eliminated. The 
additional requirement is that the challenging party prove not only that 
the Customs Service was wrong but also what a correct decision would be 
or risk suffering affirmance of the incorrect adverse decision. 

Specifically, the amended statute should provide that, if the Customs 
Court determines that action taken by the Customs Service is erroneous, 
the court should modify or set aside such action; if the court is able to 
determine what action is correct, it should so determine and order that 
the correct action be taken; if the court, after exhausting its processes 
and procedures, cannot determine what action is correct, it should re- 
mand the case to the Customs Service with instructions to take action 
consistent with the decision of the court; any redetermination made by 
the Customs Service pursuant to a remand should be subject to a new 
protest or petition; a decision by the Customs Court to remand a case 
should be appealable. 

D. Review of Decisions to Exclude Merchandise 

Exclusion of merchandise is a severe remedy. The recommendation 
would attempt to ensure expedited review of exclusion decisions and 
would delete the extraordinary authority of the Customs Service to 
detain and seize imported merchandise that allegedly infringes a United 
States trademark or copyright in the absence of the same sort of court 
order that is required before action may be taken against allegedly 
infringing domestic merchandise. 



70 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

1. EXPEDITED REVIEW 

Congress should amend the statutes giving preference to certain types 
of cases in the Customs Court, 28 U.S. C. §2633, and the Court of Customs 
and Patent Appeals, 28 U.S.C. §2602, to ensure a similar preference for 
cases properly before either court involving the exclusion of merchandise 
from entry or delivery. 

2. THE CUSTOMS SERVICE'S AUTHORITY UNDER THE TRADE- 
MARK AND COPYRIGHT STATUTES 

Congress should amend the statutes under which the Customs Service 
is authorized to detain and seize merchandise that allegedly infringes a 
United States trademark, 19 U.S.C. §1526, or copyright, 17 U.S.C. §603, 
to provide that the Customs Service may take no such action until after 
the owner of the trademark or copyright has obtained an order in a 
United States district court enjoining the importation. Alternatively, 
Congress should amend the trademark statute, as it has the copyright 
statute, to authorize the Customs Service to establish by regulation such 
a condition precedent to its acting to detain and seize allegedly infringing 
merchandise, and the Customs Service should promulgate such a regula- 
tion. In either event, the Customs Service should then adopt express 
procedures that would enable the owner of a trademark or copyright to 
identify imported merchandise that may infringe his mark or copyright. 

E. Imposition of Civil Penalties 

The penalty for violations of Section 592 of the Tariff Act of 1930, 19 
U.S.C. §1592, and some other import statutes is forfeiture of imported 
merchandise or its value. These penalty provisions are unsatisfactory. 
The statutory forfeiture penalty is hkely to be disproportionate to the 
gravity of the alleged offense. Although the Customs Service is usually 
prepared to mitigate the penalty, the statutes pose the following dilem- 
ma: If the alleged violator does not wish to accept the proffered mitigation 
because he believes he did not violate the statute or because he believes 
that he is entitled to a greater degree of mitigation, he is subject to suit in 
the district court for the full forfeiture value. Moreover, he will lose the 
benefit of any mitigation if the government can prove a violation, how- 
ever insignificant, on his part. The recommendation would rationalize 
penalty procedures. 

1. THE RATIONALIZATION OF SECTION 592 

Section 592 of the Tariff Act of 1930, 19 U.S.C. §1592, prohibiting 
fraudulent or false statements or practices respecting imports, should be 
revised to make it fairer and more rational in its operation. 

(a) Section 592 should be amended to provide for civil money 
penalties against the person violating the statute rather than for 



OFFICIAL RECOMMENDATIONS 71 

forfeiture of the merchandise or the full value thereof. Congress 
should establish maximum penalties based upon the revenue de- 
ficiency, if any, resulting from the violation and upon the degree of 
culpability of the violator. In any case in which the violation does not 
result in a revenue deficiency, the maximum penalties should be 
based upon a percentage of the value of the imported merchandise 
and upon the degree of culpability of the violator. If the violator is an 
importer, he should be given the option of surrendering his mer- 
chandise in lieu of payment of any penalty assessed. 

(b) The Customs Service should continue to have the authority to 
mitigate civil penalties. If an assessment is contested, an action by 
the government to enforce the penalty should be in the Customs 
Court. In such an action, the government should have the burden of 
proving the act or omission constituting a violation and, if so alleged, 
the intentional nature thereof. The Customs Court should be au- 
thorized to determine de novo the amount of the penalty. 

(c) In order to ensure that those subject to possible penalties 
under Section 592 know what is expected of them under the laws 
administered and enforced by the Customs Service, the Service 
should, to the maximum extent feasible, adopt and publish standards 
that will guide its determinations under such laws. 

(d) The authority of the Customs Service to seize and hold 
merchandise under Section 592, other than prohibited or restricted 
merchandise, should be Umited to instances where such seizure and 
holding are necessary to protect its ability to collect any revenue 
deficiency or penalty, and the Customs Service should be required to 
release the merchandise to the owner upon his provision of security 
for payment of such revenue deficiency or penalty. Where no such 
release is effected by the owner, the Customs Service should be 
required to release the merchandise not later than 60 days after 
seizure unless the government has initiated an action in the Customs 
Court within that period and obtained an extension for good cause 
from the court. In instances where the Customs Court permits the 
Service to hold merchandise for sale by the Service to satisfy any 
revenue deficiency or penalty determined by the judgment of the 
court, the net proceeds of such sale, after allowance for the judgment 
and costs of the sale, should be paid to the owner. 

2. OTHER STATUTES 

Each of the other penalty provisions enforced by the Customs Service 
should be reviewed and, if appropriate, revised in a manner consistent 
with the foregoing recommendations for the revision of Section 592. 



72 administrative conference of the united states 
Recommendation 77-3 

ex parte communications in informal rulemaking 
proceedings 

(Adopted September 15-16, 1977) 

In Recommendation 72-5 the Conference expressed the view that, 
generally, agency rulemaking is preferably carried out through the 
simple, flexible and efficient procedures of 5 U.S.C. §553. That statute 
requires publication of notice of proposed rulemaking and provision of 
opportunity for submission of written comments; additional procedures 
may be utilized by the agencies as they deem necessary or appropriate. 
Recommendation 72-5 counseled that Congress ordinarily should not 
impose mandatory procedural requirements going beyond those of §553 
in the absence of special reasons for doing so. In Recommendation 76-3 
the Conference amplified its 1972 recommendation by suggesting ways in 
which agencies might usefully supplement the minimum procedures 
required by §553 in appropriate circumstances. 

The primary purposes of rulemaking procedures under §553 are to 
enhance the agency's knowledge of the subject matter of the proposed 
rule and to afford all interested persons an adequate opportunity to 
provide data, views, and arguments with respect to the agency's propos- 
als and any alternative proposals of other interested persons. Section 553 
procedures, in some instances, also serve to provide the basis for judicial 
review. To the extent consistent with all of these purposes, the agencies 
should have broad discretion to fashion procedures appropriate to the 
nature and importance of the issues in the proceeding, in order to make 
rules without undue delay or expense. Informal rulemaking should not be 
subject to the constraints of the adversary process. Ease of access to 
information and opinions, whether by recourse to published material, by 
field research and empirical studies, by consultation with informed 
persons, or by other means, should not be impaired. 

While the foregoing considerations militate against a general prohibi- 
tion upon ex parte communications in rulemaking subject only to Section 
553, certain restraints upon such communications may be desirable. Ex 
parte communications during the rulemaking process can give rise to 
three principal types of concerns. First, decision makers may be 
influenced by communications made privately, thus creating a situation 
seemingly at odds with the widespread demand for open government; 
second, significant information may be unavailable to reviewing courts; 
and third, interested persons may be unable to reply effectively to in- 
formation, proposals or arguments presented in an ex parte communi- 
cation. In the context of Section 553 rulemaking, the first two problems 



OFFICIAL RECOMMENDATIONS 73 

can be alleviated by placing written communications addressed to a rule 
proposal in a public file, and by disclosure of significant oral communica- 
tions by means of summaries or other appropriate techniques. The very 
nature of such rulemaking, however, precludes any simple solution to the 
third difficulty. The opportunity of interested persons to reply could be 
fully secured only by converting rulemaking proceedings into a species of 
adjudication in which such persons were identified as parties, and entitled 
to be, at least constructively, present when all information and argu- 
ments are assembled in a record. In general rulemaking, where there 
may be thousands of interested persons and where the issues tend to be 
broad questions of policy with respect to which illumination may come 
from a vast variety of sources not specifically identifiable, the constraints 
appropriate for adjudication are neither practicable nor desirable. 

RECOMMENDATION 

In rulemaking proceedings subject only to the procedural require- 
ments of §553 of the APA: 

1. A general prohibition applicable to all agencies against the receipt of 
private oral or written communications is undesirable, because it would 
deprive agencies of the flexibility needed to fashion rulemaking pro- 
cedures appropriate to the issues involved, and would introduce a degree 
of formality that would, at least in most instances, result in procedures 
that are unduly complicated, slow and expensive, and, at the same time, 
perhaps not conducive to developing all relevant information. 

2. All written communications addressed to the merits, received after 
notice of proposed rulemaking and in its course, from outside the agency 
by an agency or its personnel participating in the decision should be 
placed promptly in a file available for public inspection. 

3. Agencies should experiment in appropriate situations with pro- 
cedures designed to disclose oral communications from outside the 
agency of significant information or argument respecting the merits of 
proposed rules, made to agency personnel participating in the decision on 
the proposed rule, by means of summaries promptly placed in the public 
file, meetings which the public may attend, or other techniques appropri- 
ate to their circumstances. To the extent that summaries are utilized they 
ordinarily should identify the source of the communications, but need not 
do so when the information or argument is cumulative. Except to the 
extent the agencies expressly provide, the provisions of this paragraph 
and the preceding paragraph should not be construed to create new rights 
to oral proceedings or to extensions of the periods for comment on 
proposed rules. 

4. An agency may properly withhold from the public file, and exempt 
from requirements for making summaries, information exempt from 
disclosure under the Freedom of Information Act, 5 U.S.C. §552. 



74 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

5. Agencies or the Congress or the courts might conclude of course 
that restrictions on ex parte communications in particular proceedings 
or in limited rulemaking categories are necessitated by considerations 
of fairness or the needs of judicial review arising from special 
circumstances. 



OFFICIAL RECOMMENDATIONS 75 

STATEMENT OF THE ADMINISTRATIVE CONFERENCE ON STRENGTHENING 
REGULATORY AGENCY MANAGEMENT THROUGH SEMINARS FOR AGENCY 
OFFICIALS 

(Adopted June 5-6, 1975) 

In pursuance of its continuing concern Avith the effective manage- 
ment of collegia] regulatory agencies/ the Conference approves the 
following statement. 

(1) In multimember regulatory agencies, the division of colle- 
gial responsibilities makes agency management unusually com- 
plex. The working relationships in a collegial setting involving 
chairmen, members, and top staff are uniciue in a number of 
respects. They are foreign to the dominant experience of many 
who find themselves involved in them. Previously learned ways 
of doing things must be undone and new knowledge forged from 
experience. 

(2) The objectives of prior efforts to strengthen the managerial 
role of the chairmen of collegial agencies have largely been 
realized. Although the preeminence of chairmen in the manage- 
ment realm is generally established, there remains some ambiguity 
in their role in relation to the role of members. This condition 
frequently results in some underljing tension in chairman- 
member relationships. But differences are seldom openl}^ articu- 
lated and worked through. When differences arise, they are likely 
to appear in the context of particidar issues, and not in a way 
that provokes attention to general questions about working 
relationships. 

(3) Chairmen, though thrust into a more active managerial 
role than other agency members, sometimes seem unenthusiastic 
about management-related matters and have had limited prep- 
aration for this aspect of their responsibilities. Other agency 
members, who in a broad sense are ultimately charged with 
rcsponsibilit}^ for management, likewise often appear to lack 
interest in management matters, such as setting regulator}' 
priorities and resource allocations. As a result, there is little 
focused attention given at the top of the agencies to the larger 
management questions and particularly^ to the nature and via- 
bility of the processes through which major management-deter- 
minations are made. 

(4) Although differences among agencies must be recognized fully 
in treating problems of regulatory management, there are certain 



1 Spo \ipws of Iho Adminislralivo Confi-rence on Ihp "Report on Splocleii Indcpenrlent Rpgulatory 
Agpncips" of tlip I'lPsidrnt's Advisory Council on F-xocutivp Organization, adopted May 7, 1971. 



76 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

commonalities. Even if experiences are not always directly transferable, 
there will be positive effects that result from their exchange. Yet 
there has been very little systematic communication among the 
agencies, especially at the level of chairmen and commissioners. 

(5) Well-planned and adeptly conducted seminars are uniquely 
suited to developing perspectives and understandings related to the 
roles of chairmen and members, stimulating interest in particular 
problem areas, suggesting approaches to problem-solving, and ex- 
changing information about organizational performance. The value 
of such endeavors has been demonstrated through a number of 
programs aimed at groups of officials not unlike regulatory officials. 
New Members of Congress participate in such enterprises. And the 
seminars regularly conducted for members of the Federal judiciary 
by the Federal Judicial Center are especially relevant. Regulatory 
agency performance thus should be improved by affording agency 
members the opportunity to participate in seminars at which they 
can exchange views with officials of other agencies on management 
problems, alternative and innovative approaches to policy formula- 
tion, intraagency and interagency and governmental relationships, 
and methods of dealing with the complex role questions presented 
when regulatory problems are administered in a collegial setting. 

(6) In exercise of its statutory authority to "arrange for interchange 
among administrative agencies of information potentially useful in 
improving administrative procedure," the Administrative Conference 
should arrange for the conduct of periodic seminars for regulatory 
agency officials. Participants should be drawn principally from among 
the chairmen, members, and senior staff of the independent regulatory 
agencies, and the agencies should cooperate in arranging their partici- 
pation. In the seminars, special emphasis should be placed on the 
interests and needs of officials who are newly appointed to their 
positions. The seminars should deal with matters basic to agency 
performance, such as budget and personnel policies and procedures; 
priority setting; relationships with Congress, departments and 
agencies, and the Executive Office of the President; and the implica- 
tions of the Administrative Procedure Act for the management of 
regulatory programs. 

(7) The seminars should be scheduled at the discretion of the 
Chairman of the Administrative Conference. Th£ participating 
agencies should play a role in planning the seminars, as should the 
U.S. Civil Service Commission. The seminar format should be flexible 
and should emphasize informal problem-oriented group discussion, 
with expert informational inputs as necessary, rather than formal 
presentations. ReUance should be placed on the participants themselves 
and on others experienced in the regulatory process, including former 
members and chairmen. Each seminar should be evaluated by the 
participants as an aid to improving subsequent efforts. 



OFFICIAL RECOMMENDATIONS 77 

Statement on Procedures to Deal With Emergency 
Shortages of Natural Gas 

(Adopted December 9-10, 1976) 

Consideration of procedures to deal with possible emergency short- 
ages of natural gas involves the analysis and weighing of numerous 
and complex issues. The Congress is the proper body to consider the 
policy responses which may be appropriate for dealing with such an 
emergency. Of significance to the Administrative Conference is that, 
in any such deliberative process. Congress should consider from the 
beginning how to assure fair and effective administrative procedure in 
any program which it adopts. This Statement is not intended to recom- 
mend any particular program or to go beyond procedural considera- 
tions. 

If the Congress believes an emergency shortage of natural gas is a 
significant possibility in the foreseeable future, then the necessary in- 
vestigation and analysis of the issues noted in this Statement should be 
undertaken soon. By giving early consideration to the difficult issues 
which must be resolved, the Congress can enable the orderly develop- 
ment of fair and effective administrative procedures to be available 
in the case of need. The alternative to such prompt consideration is 
likely to be, in the event of an emergency, a hastily-established pro- 
gram which might not adequately provide for public participation 
in the development of policies and regulations nor for suitable pro- 
cedures for the determination of matters involving identifiable parties. 
This might work unnecessary hardships, invite public distrust, and 
create more serious social and economic dislocations than necessary. 

1. At the present time the procedures by which Government can 
deal with an emergency created by an undersupply of natural gas have 
severe limitations. Governmental authority over natural gas, to the 
extent it exists, is fragmented among the Federal Power Commission 
and the several States: 

(a) The Natural Gas Act confines the Federal Power Commis- 
sion's jurisdiction, and consequently its curtailment authority, 
mainly to the interstate sale and transportation of natural gas; 
the Commission does not exercise authority over natural gas that 
is produced and consumed within a single State, nor normally 
over the retail sale distribution of either intrastate or interstate 
gas. 

(b) The procedures of the Federal Power Commission are 
largely designed for certification and ratemaking cases, and they 
are generally ill-suited for emergency situations. While the Com- 
mission has adopted an end- use curtailment policy, in fact it is 
without jurisdiction to enforce it at the State level. Nor does the 
Commission have the authority to order interconnections among 
pipelines and transfer of gas from one to another. 



78 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

(c) The respective States have widely varying resources and 
interests. No procedures exist for them to distribute the burden 
of an emergency shortage of natural gas among themselves and 
throughout the Nation. 

2. The range of possible legislative responses is wide, and the ques- 
tions involved are of the highest complexity : 

(a) The approaches which have been suggested include: Com- 
plete reliance on the free market mechanism to bring supply and 
demand into balance; primary reliance on the free market 
mechanism, coupled with standby emergency procdures of some 
sort; an end-use allocation procedure administered jointly by a 
Federal agency and the States; a procedure in which States or 
regions or classes of users receive pro-rata portions of the gas used 
in a base period; incentives to conserve natural gas and other 
forms of energy ; accelerated development of renewable forms of 
energy; extension of federal regulations to the intrastate gas 
market. 

(b) Determination of the appropriate approach, from among 
the foregoing or others, is for Congress to resolve through the 
political process. 

3. Any congressional action to institute Federal or Federal/State 
allocation procedures requires consideration of many complex sub- 
jects, several of which are noted below in Paragraphs 4—6. If, there- 
fore, Congress determines (a) that an emergency shortage of natural 
gas is a significant possibility in the foreseeable future and (b) that 
its response will be some sort of allocation procedures, it should act 
promptly in view of the time involved in the legislative process and 
the lead time necessary to establish any new program. Adequate lead 
time should also be provided to allow States, gas users, and industry 
participants to plan on a sound, well-conceived basis. 

4. If Congress were to consider some sort of end-use allocation 
procedure, the following issues should be addressed in the legislative 
process : 

(a) Comprehensive data are required for its organization and 
implementation, and such data do not appear to be readily avail- 
able in sufficiently accurate, complete, and compatible form. 

(b) An end-use allocation procedure might adversely affect 
incentives for the conservation of natural gas by States, gas dis- 
tributors, and users, and for the development of new sources of 
supply, so that care should be taken to minimize any such ad- 
verse effects. 

(c) The sheer number of users of natural gas, each of which 
or each category of which might require consideration in an 
end-use allocation procedure, and each of which would incur 
particular economic and social consequences if the supply of 
natural gas were interrupted, means that it may be impractical 



OFFICIAL RECOMMENDATIONS 79 

to administer an end-use allocation procedure exclusively by 
means of a centralized Federal agency. 

5. If Congress were to consider involving the States in the ad- 
ministration of an end-use allocation procedure, the following issues 
should be addressed in the legislative process : 

(a) In some States, the authority to formulate and implement 
relevant energy policy resides in a public utilities (Commission, 
while in other States it resides in the Governor's office, and in 
still other States legislative provision for such authority does 
not currently exist. In some States, authority is divided between 
statewide and local governmental entities. 

(b) Many State governments appear at present to lack the 
resources and expertise to administer an end-use allocation sys- 
tem. A comprehensive survey of the respective personnel and 
financial resources- of the various States that would be needed 
to undertake an end-use allocation system apparently does not 
currently exist. 

(c) Congress should consider whether and by what means 
the Federal Government may induce a State to take legislative 
action. 

(d) Some States have taken measures to protect their respective 
economies from the adverse effects of natural gas shortages, and 
they would probably resist any Federal system which failed to 
recognize and reward such diligence. 

6. If Congress were to consider authorizing some Federal agency 
to order, as part of an allocation procedure, interconnections among 
interstate and intrastate pipelines and the mandatory transfer of gas 
from one to another, then the legislative process should address the 
fact that no comprehensive, accurate, compatible, and readily avail- 
able data concerning the existence and feasibility of interconnections 
among pipelines exist. 

7. Whatever action it takes. Congress should consider the relation- 
ship between that action and a number of laws, including the Na- 
tional Environmental Policy Act (NEPA) and existing antipollu- 
tion statutes. 

(a) The effect on the environment of requiring large users of 
natural gas to switch to alternative fuels may be substantial. 

(b) Environmental impact statements may be time consuming 
and may be incompatible with the implementation of emergency 
procedures, if not their development. 

8. To the extent that it enacts legislation authorizing allocative 
procedures by government agencies, Avhcther on the Federal, State, 
or local level. Congress should ensure the use of suitable and adequate 
administrative procedures. 

(a) To the maximum extent feasible, each agency should de- 
velop its policies and regulations as far in advance of an actual 



80 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

emergency as possible and do so by using the procedures of § 553 
of the Administrative Procedure Act and Recommendations 72-5 
and 76-3 of the Administrative Conference. 

(b) For the determination of matters that involve any spe- 
cifically identifiable party, agencies should, to the maximum extent 
feasible, use procedures that assure the party adequate notice, 
opportunity to present facts and positions, a statement of the basis 
for decision, and reasonable administrative appeal. 



CONSULTANT AND STAFF REPORTS 

IN SUPPORT OF 

RECOMMENDATIONS 

75-1 through 77-3 



81 



REPORT IN SUPPORT OF RECOMMENDATION 75-1 

(As published in: The University of Chicago Law Review, 
Vol. 42, No. 2, (Winter 1975) 



In Quest of Reason: 

The Licensing Decisions of the 

Federal Banking Agencies* 

Kenneth E. Scotft 

In terms of both size and economic importance, the banking 
business plays a pre-eminent role in the United States. At the end 
of 1973, commercial banks, mutual savings banks and savings and 
loan associations held over a trillion dollars in total assets. There 
were almost 20,000 separate institutions, of which 6,699 were fed- 
erally chartered; an additional 11,750 state chartered institutions 
had federal deposit insurance from the Federal Deposit Insurance 
Corporation (FDIC)' or Federal Savings and Loan Insurance Cor- 
poration (FSLIC).^ 

Along with the federal involvement and support goes an exten- 
sive structure of federal regulation. National banks are chartered 
and supervised by the Comptroller of the Currency, and automat- 
ically receive deposit insurance from the FDIC. State banks are 
chartered and supervised by the different state banking author- 
ities; in addition, they may join the Federal Reserve System (and 
thus automatically receive FDIC insurance) or the FDIC itself, 
thereby incurring a secondary level of regulation and supervision. 

* riiis .iriitlc IS based on .1 sni(l\ uiulfri.iken loi llic Adininisir.itivc (^oiilt-i ciu c ol tlu- 
Uniicd Slates. Ilic views evpiessed, however, ,iie solelv those ol llie author and do not 
represent an otiicial |)osition ol the Adinmisti alive Coidetenie. I he aiiihoi vvisiies to 
tliailk the Ca)ni|)ti ollei ol the (aiiieiuv and his stall lot their lull a\m\ 1^1, k ions coopera- 
tion in making ehaiicr .md hiaiuh deiisioii files av.iilahle loi this stiidv. 

■r I'rolessoi ol Law, Staidoid Lniveisitv. 

1. Originaliv (le.ited hv An ol lune Hi, U).S:V (h. W. !j H, 48 Slat. I(i8. 

2. Origin.illv created hv .\it ol Jime 27, 19;V», di. 817. tit. I\', § 402, 48 Stat. 1256. 



83 



84 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Federal savings and loan associations are chartered and regulated 
by the Federal Home Loan Bank Board (hereafter FHLBB or 
Bank Board) and are automatically insured by the FSLIC. State 
savings and loans may also join the FSLIC to obtain insurance of 
accounts. Tables 1 and 2 provide a statistical picture of the juris- 
diction of the various federal banking agencies. 

Since its institution in the early 1930s, federal deposit insurance 
has gained widespread popularity and acceptance and is iiow re- 
garded as a virtual necessity for any new bank or savings and loan; 
over ninety-seven percent of banking assets are held by insured 
institutions. Whether directly through control over chartering or 
indirectly through control over insurance of deposits, therefore, 
the federal banking agencies determine entry into the banking 
business. Moreover, through their approval powers over branches 
for existing banks and savings and loans, the federal banking 
agencies can to a large degree control entry into new markets and 
further influence the structure of banking competition. 

These are not unimportant powers, but they have not been the 
focus of much public attention. This study inquires into the way 
these powers have been and now are exercised, and it suggests 
changes in regulatory procedures. The influence that the courts 
have exerted over these procedures will also be examined with 
some care. 

We will begin with the area of primary supervision and direct 
licensing controls: approvals by the Comptroller of the Currency 
of charters and branches of national banks, and by the Federal 
Home Loan Bank Board of charters and branches for federal 
savings and loan associations. In the case of the Comptroller, it 
will be necessary to analyze a rather long and complicated se- 
quence of cases in some detail — partly to convey a picture of past 
difficulties, and partly to understand the posture in which the 
agency now finds itself vis-a-vis the judiciary. Then we will turn to 
the area of secondary supervision: decisions to admit state char- 
tered banks to membership in the Federal Reserve System (FRS) or 
in the Federal Deposit Insurance Corporation, or to approve their 
branches; and decisions to admit state savings and loans to mem- 
bership in the Federal Savings and Loan Insurance Corporation. 
In both instances we will be concerned with how much discretion 
has been vested in the agency in question, and the grounds and 
manner of its exercise. 

Thereafter we will look at these decisions in more statistical 
terms — in aggregate results for all four agencies over the period 
of the last five years, and in a sample study of decision files for the 



LICENSING DECISIONS OF BANKING AGENCIES 85 























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86 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Comptroller. Based on all these materials, some concluding obser- 
vations and recommendations will be offered. 

I. Primary Approvals 

A. The Statutory Foundation 

The national banking system and the office of the Comptroller 
of the Currency as its administrator were established by the Na- 
tional Bank Act of 1864,^ which superseded the National Cur- 
rency Act of 1863.^ The language of those acts of over a century 
ago is reflected today in sections 12 through 27 of the United 
States Code. "Associations for carrying on the business of bank- 
ing" may be formed by five or more natural persons, who must 
enter into and sign articles of association, a copy of which is to be 
forwarded to the Comptroller.^ The organizers must also execute 
and file with the Comptroller an organization certificate, giving 
among other things the bank's name, place of operation, and 
amount of capital stock. ^ The amount of capital required by law 
ranges from $50,000 in localities with a population of no more 
than 6000 to $200,000 in cities with a population of over 50,000.^ 
Upon receiving this information, the Comptroller is to 

examine into the condition of such association, ascertain es- 
pecially the amount of money paid in on account of its capital, 
the name and place of residence of each of its directors, and 
the amount of the capital stock of which each is the owner in 
good faith, and generally whether such association has com- 
plied with all the provisions of this chapter required to en- 
title it to engage in the business of banking; . . .^ 

If upon that examination "it appears that such association is law- 
fully entitled to commence the business of banking, the comptrol- 
ler shall give to such association a certificate . . . that such associa- 
tion is authorized to commence such business."^ The Comptroller 
is authorized to withhold the certificate only when "he has reason 
to suppose that the shareholders have formed the same for any 
other than the legitimate objects contemplated by this chapter."'" 

3. Act of June 3, 1864, ch. 106, 13 Stai. 99. 

4. Act of Feb. 25, 1863, ch. 58, 12 Stat. 665. 

5. 12 U.S.C. § 21 (1970). 

6. Id. §§ 22-23. 

7. Id. § 51. 

8. Id. § 26. 

9. Id. § 27. 

10. Id. 



LICENSING DECISIONS OF BANKING AGENCIES 87 

On its face, the statute does not seem to grant the Comptroller 
broad discretion to determine whether a community should have a 
new bank.'' This fact bothered the district court in Pitts v. Camp,^"^ 
and yet that court declared itself "impressed with the long and 
continued practice of the Comptroller of considering the need of 
the community [and] with the fact that the weight of authority ac- 
cepts the consideration by the Comptroller of the need factor with- 
out question."'^ The court then cited Sterling National Bank of 
Davie v. Camp,^'^ which had asserted: "It has always been recognized 
that this legislation confers vast discretion on the Comptroller to 
approve or disapprove a new charter application."'^ 

These decisions considerably overstate the matter. It has not 
"always been recognized" that the National Bank Act confers vast 
chartering discretion upon the Comptroller, and it has not been 
his "long and continued practice" to assert such discretion. The 
dominant views of the mid-nineteenth century favored "free bank- 
ing," as part of the general trend towards "free incorporation" — 
the idea that charters to do various kinds of business should be 
readily available to anyone who complied with relatively simple 
and specific statutory requirements, rather than be grants of spe- 
cial privilege by the legislature to those who obtained (or bought) 
its favors. New York and Michigan passed free-bank laws in the 
1830s, and by the time of the Civil War roughly half the states had 
adopted similar measures.'^ The National Currency Act and the 
National Bank Act were designed as free-bank laws, and with that 
origin in mind their language becomes perfectly comprehensible.'^ 

11. 1 hf C^oiiit li<is diltkults in seeing langiuige in those sections giving the Comptrol- 
ler discretion in granting the certilicaie it the s])ecific requirements of the act are 
met. . . . 

The stalutor\ language, which the defendant contends makes tiie need of tiie new 
bank a ])rf)pei consideration and connnits the determination of that need to the Comp- 
troller's discretion, does not impress the couit. 

Pitts V. Cam]), ;V29 F. Siipp. \'MY1, ISO? (D.S.C. 1971), vacated, W^ K.2d 6:V2 (4th Cir. 1972), 

vacated and lemaiidcd. 41 I L'.S. 1:^8 (197:^. 

12. Id. 

l:^. Id. at 1307. 

14. 4:^ F.2d 514 Cnh Cir. 1970), cit. dniicd, 401 U.S. 925 (1971). 

15. Id. at 516. 

16. R. RoBF.RTSON, The CIompi roller .\nd B.^nk Supervision 22-2:^ (1968). This is an 
official history of the Office of the Comptrollei . 

17. See ^eii('iall\ id. at 44-45. See aha B. H.-\MM()ND, B.^NKS .AM) FoLtric:s in .\meric.A 727 
(1957): 2 F. Rkdi kh, I He Moldin(. ok .\.meri<..a.n B.a.nking 99-105 (1968). In jiractice, the 
first C^omptrollei s tiied on occasion to niake their own judgments felt, but the legal looting 
foi theii efforts was minimal. "I he law did not require the oigani/ers to salisU the Comp- 
troller that thev were qualified to engage in the banking business, that additional banking 
facilities were needed, or that the pioposed bank had reasonable prospects of success." 
Wvatt, Fedeta/ liatiknii:; Legislation, in Banking Siudies 44 (F.R.B. 1941). 



88 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

For a period of a decade following the Civil War, limitations on 
the amount of national bank-note circulation served indirectly 
to limit chartering of national banks, but when that condition 
ended in 1875 national bank charters were available for every 
qualifying group."* For the balance of the nineteenth century. 
Comptrollers not only recognized but proclaimed their lack of 
chartering discretion — for example. Comptroller Knox in 1881: 
"[T]he Comptroller has no discretionary power in the matter, but 
must necessarily sanction the organization ... of such associations 
as shall have conformed in all respects to the legal requirements."'^ 

A shift in position did not begin until 1908, when a new Comp- 
troller took office on the heels of the Panic of 1907,^" and it did not 
become established policy until the 1920s.^' This new approach 
did not acquire a respectable statutory foundation, however, until 
the Great Depression led to the creation of the Federal Deposit 
Insurance Corporation^^ and enactment of the Banking Act of 
1935.^^ The latter enactment required the Comptroller, when he 
chartered a new national bank, which automatically would become 
an insured bank, to certify to the FDIC that he had "considered" 
the same six factors that the FDIC was supposed to consider in 
passing upon the application for insured status of a state nonmem- 
ber bank:^^ "The financial history and condition of the bank, the 
adequacy of its capital structure, its future earnings prospects, 
the general character of its management, the convenience and 
needs of the community to be served by the bank, and whether or 
not its corporate powers are consistent with the purposes" of the 
Federal Deposit Insurance Act.^'' In this somewhat backhanded 
fashion the law recognized — or, more accurately, created — the 
Comptroller's chartering discretion. To the extent that there are 
standards governing that discretion, therefore, they are to be 
found in the Federal Deposit Insurance Act, not the National 
Bank Act. 

Turning to the subject of branching, we find that it goes without 
mention in the National Bank Act of 1864.^^* This legislative omis- 
sion was regarded by early Comptrollers as prohibiting branch 



IH. R. RoBKRi SON, \iil))fi noic l(>. .u 37-(>l. 

19. IMSI CoMP. CiKR. Ann. Rti'. 1 1. 

20. R. ROBKRISON, Mljlla llOlf H), .11 ()(i-(J9. 

LM. /'/. .11 9,")-96. 

22. the KDIC w.is cieatod l)v .\ct ot Jimo Hi, 19.S:», ch. 89, § H, 4H Stal. 168. 

2:V .Ui ot .\iig. 2:^ 19:^5, ch. (il4, § 101, 49 Slat. 684, (,>^)^, awendnig, 12 L'.S.C. § 264. 

2 1. 12 I S.C. § 1814 (1970). 

2.'>. hi. § 1816. 

2<i. ,\ci ol June \\. 18(v», ch. 106, IS Siai. 99. 



LICENSING DECISIONS OF BANKING AGENCIES 89 

banking by national banks, ^^ a view that was confirmed by the At- 
torney General in 1911^^ and ultimately by the Supreme Court in 
1924.^^ Meanwhile, branching by state banks had become exten- 
sive in a number of states, and considerable pressure built up 
for allowing national banks to do likewise. During the 1920s the 
Comptroller responded by approving "consolidations" as a device 
for obtaining branches and by authorizing "offices" that were al- 
most branches.^" 

A more satisfactory answer was achieved with the passage of 
first the McFadden Act of 1927,^* which permitted national banks 
to have "inside" branches (located in the same city as the head of- 
fice), and then the Banking Act of 1933,^^ which authorized "out- 
side" branches (located elsewhere in the state), in both cases only 
to the extent state law expressly authorized such branches for state 
banks and subject to certain additional capital requirements. As- 
suming the geographical and capital requirements were satisfied, 
a national bank could establish, operate or move a branch only 
with the "approval" of the Comptroller.^^ No standards were pro- 
vided to govern the grant or denial of approval. 

The statutory picture for the Federal Home Loan Bank Board is 
less complicated. Section 5 of the Home Owners' Loan Act of 1933^'* 
authorized the FHLBB, "giving primary consideration to the 
best practices of local mutual thrift and home-financing insti- 
tutions in the United States," to provide for the organization, 
chartering, and operation of federal savings and loan associations. 
Section 5(e) of the Act went on to provide the following standards: 

No charter shall be granted except to persons of good char- 
acter and responsibility, nor unless in the judgment of the 
Board a necessity exists for such an institution in the commu- 
nity to be served, nor unless there is a reasonable probability 
of its usefulness and success, nor unless the same can be es- 
tablished without undue injury to properly conducted existing 
local thrift and home-financing institutions.^^ 

The Home Owners' Loan Act of 1933, like the National Bank 
Act of 1864, made no reference to the subject of branches. Never- 

27. K. RoBKKfsoN, Mifjin iioic It), .11 HI-85. 

2H. 29 ()i>. A I rv (.f.n. HI (191 1). 

29. lirst Natl Bank in St. I.oiiis \. Missouii, 26:i U.S. (540 (1924). 

M). R. RoBF.RisoN. M//;(« note 16, .ii l()()-()4. 

M. Ml ol Vvh. 25. 1927, th. 191, § 7, 44 Stat. 122H. 

V2. Ml ol June Hi, 19:^:^ th. 89, S 2^, 4H Siai 189. 

:v.\. 12 u.s.c. i)§ ;vi(c), (c) (1970). 

;V4. Ml ol Jinic i:i 19;<:i, ch. ()4, § 5. \H Stat. \V2. 
:<5. 12 L'.-S.C. § 1464(c) (1970). 



90 ADMINISTRATIVE CONFP^RENCE OF THE UNITED STATES 

theless, the Bank Board from the outset took the position that it 
had the power to authorize branches, and was upheld when ul- 
timately challenged in court. ^^ The statute even today is silent on 
branching and obviously contains no standards to affect the 
FHLBB's discretion when passing upon branch applications by 
federal savings and loans. 

So by different routes the two agencies emerge at about the same 
point. Both face a short list of general standards in the relevant 
statutes for charter approvals, and no standards whatever for 
branch approvals. Furthermore, the charter standards are either 
too narrow or too unspecified to serve as much of a guide for or 
restraint upon the exercise of discretion. Of the Comptroller's 
list of six factors, the first ("the financial history and condition of 
the bank") is inapplicable to new charters and the last (corporate 
powers "consistent with the purposes" of the Act) is a routine for- 
mality.'^'' The second and third ("adequacy of its capital structure" 
and "future earnings prospects" for the Comptroller, "reasonable 
probability of its usefulness and success" for the Bank Board) do 
ha\e content, but depend on a conjectural exercise in financial 
prediction. The fourth ("general character of its management" for 
the Comptroller, "persons of good character and responsibility" 
for the Bank Board) imposes a minimal constraint, occasionally in 
issue but capable of being met by millions of possible applicants 
and thousands of possible managing officers. It is therefore the 
fifth ("the convenience and needs of the community to be served" 
for the Comptroller, "a necessity . . . for such an institution in the 
community to be served" and establishment "without undue in- 
jury to properly conducted existing local thrift and home-financing 
institutions" for the Bank Board) that in most cases serves as the 
ground for decision. For convenience, this latter criterion will be 
referred to simply as the "need" factor. 

Standards so judgmental and indefinite constitute in effect a 
delegation by the legislature to the administrative agency of the 
task of developing public policy in this area. We shall next examine 
the manner in which the two agencies have done so. 



:U). Ill SI Will H.iiik <il \UKccs|)oii \. liiM led. S.iv. X: 1.1), 111 .\ss'n ol HoincsicMil. 22.') 
l-.2(l M'l (D.C Cii. 193,")): NOiili Xilinmon X.ii'l li.iiik \. Kciiiu Kcd. S,i\. c<: Lo.m .\ss'ii. 
1H7 l-.2(l .'){il (.1(1 Cm.), (ril. 'Iriiinl. :U2 L'.S. 81(i (l'),")l). In iiv hi. null n-guJaiioii. iht- 
IHl.BB li.is smipK rtpc'.iud ilic si.iiiiioix ch.iricT si.ukI.ikU. Sre 12 C.K.R. S 5 K"). I 4(( ) 
(H)7^). 

;^7. .\ simple pioliihilion ol llu- c\i'U isc ol iiu oiisisu-iil powers would sullicf. C/. 12 
C.r.R. S :5:^2.l ( 197 1). 



LICENSING DECISIONS OF BANKING AGENCIES 91 

B. Decision Procedures and Judicial Review: Pre-1965 

One way for an agency to develop law and policy is by undertak- 
ing comprehensive studies, followed by the issuance of detailed 
policy statements or regulations. Neither the Office of the Comp- 
troller nor the FHLBB has availed itself of this approach. On oc- 
casion, general statements of "philosophy" appear in public 
speeches or annual reports, ^^ but they have never been carried to 
the point of providing enlightenment as to how a particular appli- 
cation might fare. 

Another way to develop policy is by the common law method of 
case-by-case adjudication. In the period since the Comptroller 
began regularly exercising approval discretion in the 1920s and 
the Bank Board started performing that function for federal sav- 
ings and loans in the 1930s, the two agencies have passed upon 
thousands of applications for charters and branches, granting 
some and denying others. Their procedures, however, have been 
quite informal and customarily have not entailed providing writ- 
ten opinions or explanations of the decisions. 

If one had consulted the Comptroller's regulations at the begin- 
ning of 1959 for information on how to obtain approval for a new 
bank or a branch, he would have found that the application was 
routed through various levels of the agency, with recommendations 
attached at each stage, ^'^ but without any form of public hearing. A 
field examiner would make an "investigation" of the application, 
gathering unspecified kinds of economic and market data and 
visiting existing banks in the locale to ask for their views. The ap- 
plicant would not know what the investigator turned up, and ob- 
jectors would not generally know even what was in the applica- 
tion, let alone the examiner's report. On request, an applicant or 
objector would usually be given a "conference" with the Regional 
Comptroller or another representative, without the presence of 
other parties, at which he could voice his opinions on matters that 
he thought might be relevant to the outcome. "Among other mat- 
ters to be considered" in the case of a new bank charter, the regu- 
lations stated, were the six factors enumerated in section 1816 of 
title 12 of the United States Code.^" For a branch application, the 
regulations listed additional factors: 

[T]he number of branches now in operation and their location, 
the proposed location of the new branch and the distance 

W. Sei-.e.i^., 19(i4 CoMP. CtKK. Ann. Rep. 2-4. 

:i9. 12 C.K.R. t)S 4 1. 1..") (1<I,')(I|. 

10. I'l. § 4.1(b). .\ niodilicd xciMoii is now toiuaiiicd in 12 C.I-.R. S 4.2(b) (1974). 



92 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

from the head office, the nearest banking facilities, . . . the na- 
ture of the potential clientele and possible business available, 
including an estimate of contemplated volume within a rea- 
sonable period of time and the prospects of successful opera- 
tion of the branch together with any other pertinent factors.''' 

The process of evaluation whereby these relevant "factors" were 
translated into a decision was not described in any published 
source available beforehand, and the applicant would know noth- 
ing more if ultimately he was turned down: "If the decision is un- 
favorable the applicants are so informed."'*^ In its entire history, 
the Office of the Comptroller had never held a public hearing 
on an application nor published a written opinion.'*^ 

Over at the FHLBB, applicants and their opponents were faring 
better procedurally but not substantively. The Bank Board cus- 
tomarily released charter and branch applications to the public 
and scheduled public hearings'*^ on either a "dispensable" or "non- 
dispensable" basis. ^^ Information concerning the grounds for de- 
cision was about as hard to come by, however, as with the Comp- 
troller. For charter applicants, the regulations merely required 
data "sufficiently detailed and comprehensive to enable the Board 
to pass" upon the four statutory criteria; in the case of branch ap- 
plications, the regulations required an applicant to 

state the need for such branch office; the functions to be per- 
formed; the personnel and office facilities to be provided; the 
estimated annual volume of business, income, and expenses 
of such branch office; and [submit] a proposed annual budget 
of such association.'"' 

How such data eventuated in a grant or denial of the application 
was not vouchsafed to the applicant in any form of written opinion, 
however, leaving the actual policies of the Board as obscure as 
those of the Comptroller. 

This state of affairs was not viewed critically by authorities in 
administrative law. In its 1941 report, the Attorney General's 
Committee on Administrative Procedure stated, in a passage cher- 
ished by the banking agencies: 



41. W. § 4.5(a)(1) (1959). 

42. I/I. § 4.1(<1) (chaiters); „l. § 4.5(a)(:^) (brandies). 

4'^. Bloom, Hearing Piorcliiifs iij the Of/ice of the C(iinj)ttoUer o/ the Ciiiirney, M I..v\v & 
CoNTEMiv Prob. 72;^ (1966). 

44. 12 C.K.R. §§ 54:l2(c). 545.14, 542.2 (1959). 

45. See Breisaclicr, Puiclice ami Procedme Bejore the FHI.IiH. 16 Brs. Law. 1 16, 148 ( 19(i()). 
4(i. 12 C:.K.R. 8 545.14 (1959). 



LICENSING DECISIONS OF BANKING AGENCIES 93 

The Committee recognizes, however, that ... in determining 
whether individuals are suited to engage in a banking business, 
or whether the community needs the bank, or whether a bank 
should be insured and similar questions, a congeries of im- 
ponderables is involved, calling for almost intuitive special 
judgments so that hearings are not ordinarily useful . . . .^^ 

The Attorney General's Committee therefore did not recommend 
that the banking agencies be covered by the formal hearing re- 
quirements of the proposed legislation, and ultimately they were 
not so covered by the Administrative Procedure Act of 1946.'*^ 
Professor Kenneth C. Davis in his Administrative Law Treatise visited 
the same area in 1958 and found that all was well: 

Probably the outstanding example in the federal govern- 
ment of regulation of an entire industry through methods of 
supervision, and almost entirely without formal adjudication, 
is the regulation of national banks. The regulation of bank- 
ing may be more intensive than the regulation of any other in- 
dustry, and it is the oldest system of economic regulation. The 
system may be one of the most successful, if not the most suc- 
cessful. The regulation extends to all major steps in the es- 
tablishment and development of a national bank, including 
not only entry into the business, changes in status, consolida- 
tions, reorganizations, but also the most intensive supervision 
of operations through regular examination of banks. 

The striking fact is that whereas the non-banking agencies 
administer their systems of requiring licenses and approvals 
by conducting formal adjudications in most cases involving 
controversies, the banking agencies use methods of informal 
supervision, almost always without formal adjudication, even 
for the determination of controversies. . . . 

Even though important groups in the nation are apj)lying 
pressures to try further to judicialize the administrative pro- 
cess, a close study of the methods of supervision used in the 
regulation of banking, as compared with the methods of 
determinations on a record of formal proceeding, might well 

17. AdMIMSI RA I UK 1'K()( KDIKK IN (.OVKKNMKM .\(.KN( IKS, S. !)()(. \<). H. 77lll Cdllt^.. 

isi Sc-ss. I rj-i:< (I'M I). 

JK. .\(ii)l |uiic II, i'.tU), ( h. :<21, ()0 Si.ii. 2:<7. I fdinicilK iliis is l)c( .lusc ilic i ((iiiii c- 
iiR'Hls ol sc'( lion .") onU ,i|)|)l\ lo i ,iscs ol .kIjikIk.iIioii "rc'(|iiii cd l)\ sl.iluu- lo l)C' (kici miiud 
on ihc record alter opporluniiv loi ,iii .igcius iic<iriiig," ,iiul ,is is cMdcni ilu- h.mkiiiL; si,n- 
mes do not so ic<|iiiic lot liiis ( l.iss ol <lf{ isjoiis. Srr ,'> I S.C {) ,").") I(. I) (I '.(70); t/. I lined 
States \. l-lorida Fast Coast R\., IK) IS. 221, 211 (l'.>7:<) (nikiiiakm^); I niud Si.ius \. 
.MIeKheiu-laidliiin Steel Corp., I()() IS. 712, 7.')()-,')7 (1972) (same). 



94 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

prove that the nonbanking agencies have a good deal to learn 
from the banking agencies. Banking regulation is obviously 
superior in its efficiency; if, as those who are regulated seem 
generally to believe, banking regulation fully measures up in 
qualities of overall fairness, then the only major question re- 
maining is relative effectiveness from the standpoint of pro- 
tection of the public interest."*^ 

The same attitude prevailed in court when judicial review of a 
decision was sought. To begin with, there was no provision in the 
National Bank Act or in the Home Owners' Loan Act authorizing 
court review of charter and branch decisions. Thus, the only hope 
of obtaining review would be an original proceeding in a district 
court, probably in the form of an action for an injunction or de- 
claratory judgment, and there was considerable doubt as to 
whether the Comptroller's decisions were reviewable at all.^" So far 
as reported decisions show, no denied applicant or competing 
bank had ever even tried to take the Comptroller to court over a 
charter decision, and of course the nature of the applicable stat- 
utory standards made the prospects of success in such a proceed- 
ing rather uninviting. The branch law, on the other hand, by in- 
corporating state law geographical restrictions,^* posed the pos- 
sibility of narrow and specific grounds of difference with the 
Comptroller's position, and so cases were undertaken. A denied 
applicant lost in Michigan National Bank v. Gidney,^^ but did suc- 
ceed in obtaining declaratory judgment review. In 1958 the 
Comptroller was for the first time enjoined from authorizing a 



49. 1 K. Davis, Administrative Law Treatise § 4.04 (1958). Professor Davis's position 
had become more critical by 1966. See Davis, Administrative Procedure m the Regulation of 
Banking, 31 Law & Contemp. Prob. 713 (1966). 

50. See Stokes, Public Convenience and Advantage in Applications for New Banks and 
Branches, 74 Bank. L.J. 921, 930 (1957): "Well informed opinion is that there is no right of 
appeal from a decision of the Comptroller of the Cm rency." 

51. 12 U.S.C. § 36(c) (1970): 

The conditions upon which a national banking association may retain or establish and 
operate a branch or branches are the following: 

(c) A national banking association mav, with the approval of the Comptroliei' ol the 
Currencv, establish and operate new branches: (1) Within the limits of the city, town or 
village in which said association is situated, if such establishment and operation are at 
the time expressly authorized to State banks by the law of the State in question; and (2) 
at any point within the State in which said association is situated, if such establishment 
and operation are at the time authorized to State banks by the statute law of the State 
in question by language specifically granting such authority affirmativeh and not 
merely by implication or recognition, and subject to the restrictions as to location im- 
posed by the law of the State on State banks. . . . 

52. 237 F.2d 762 (D.C. Cir.), cert, denied, 352 U.S. 847 (1956). 



LICENSING DECISIONS OF BANKING AGENCIES 95 

oranch, in National Bank of Detroit v. Wayne Oakland Bank,^^ and in 
1959 he was enjoined again in Commercial State Bank of Roseville 
V. Gidney.^* All of those cases involved the question of violation of 
state law requirements as to location and did not challenge the 
Comptroller's judgment on approval or disapproval as such. 

For the Bank Board, the picture was not much different. It had 
never been challenged on a charter decision, and the only branch 
challenges were to its authority to authorize branches at alP^ and 
not to its exercise of discretion in a particular case. 

The story of the attempt to obtain review of branch and charter 
decisions really begins with FHLBB v. Rowe^^ in 1960, and the be- 
ginnings were not auspicious. As in most of the early cases, the 
grounds primarily relied on were procedural. The plaintiff in 
Rowe, a denied charter applicant, contended that he was entitled to 
a hearing conducted by the Board in accordance with Administra- 
tive Procedure Act (APA) specifications. The District of Columbia 
Circuit not only rejected that contention but went on to suggest 
that judicial review of a charter decision would be available, if at 
all, only under rather narrow circumstances, noting that Congress 
had "clearly reposed in the Board a wide discretion" and had "not 
in the Act provided for judicial review of the Board's order. "^^ 

In the context of branch applications, the APA-hearing-entitle- 
ment argument had already been tried without success, ^^ so the 
plaintiff in Bridgeport Federal Savings £sf Loan Association v. 
FHLBB^^ instead attacked the form of Board hearing actually held. 
According to the complaint, the hearing was inadequate to satisfy 
procedural due process, since it involved restricted opportunity 
for cross-examination and denial of access to internal reports and 
information upon which the Board relied in approving a com- 
petitor's branch application. In upholding the Board, the Third 
Circuit saw the hearing as playing a limited and even minor role 
in the decision process: 

The rulings of the Board are the result of its expert judgment, 
its policy, the reports, recommendations and analyses of its 



,');•(. 2,")2 1/2(1 3:^7 (6ih C\\.). cnt. denied. .S58 L'.S. 8:^0 (1958). 

54. 171 v. Slip]). 770 (D.D.C. 1959), «//>/, 278 F.2cl 871 (D.C. Cn. 1960). 

55. See text and note at note 'iGsiifjiri. 

56. 284 F.2d 274 (D.C. Cii. 1960). 

57. Id. at 275, 277. 

58. First Nat'! Bank of .McKcesport \. First Fed. .Sa\. & Loan Ass'n of Homestead, 225 
F.2d 33, 36 (D.C. Cii. 1955). 

59. 307 F.2d 580 (3rd Cii. 1962), reil. denied. 371 L'.S. 950 (1963). 



96 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Staff, plus any special evidence it might conclude necessary to 
obtain by way of hearing.''" 

The cuhiiination of such judicial deference was expressed at 
about this same time in Community! Xational Bank v. Gidney,^^ when 
a competing bank attempted to overturn a branch approval by the 
Comptroller on two grounds — not only violation of state law lo- 
cation requirements, but also lack of "necessity" for establishment 
of the branch. In order to show that the Comptroller had abused 
his discretion, plaintiff moved for discovery of documents in the 
Comptroller's files relating to the examination and evaluation of 
the branch application. The court's response was unequivocal: 

In passing on branch applications, the Comptroller must nec- 
essarily utilize his great expert knowledge and consider ques- 
tions of policy, as well as of fact, with respect to the interest of 
the public; coordination with other federal and state super- 
visory agencies; and banking conditions in general. 

In view of the above cases and considerations, and especially 
in view of the failure of Congress to provide any standards 
by which this cotnt could determine whether the exercise of 
discretion by the Comptroller was "reasonable" or whether it 
was "arbitrary", this court is of the opinion that Congress in- 
tended that the Comptroller have an exclusive and unreview- 
able power of discretion in determining whether or not to ap- 
prove the establishment of branch banks pursuant to 12 
U.S.C.A. § 36(c). The Court, therefore, is further of the opin- 
ion that the discretion provided for in 12 U.S.C.A. § 36(c) 
comes within the second exception to Section 10 of the Ad- 
ministrative Procedure Act and that this court is without juris- 
diction to review the action of the Comptroller in the present 
case.**^ 

The full reach of that language implied that the Comptroller could 
not be reviewed and reversed by a court even for an unmistak- 
enable violation of the state law location requirements of section 
36(c) of title 12 of the United States Code, and of course there 
was already ample precedent to the contrary on that point. ^^ It is 
not surprising that the district judge later modified his position;®"* 
yet, if confined to the issue of how far to review a banking agency's 



(id. hi. .11 ."xSl. 

(ii. I'.cj 1 . .su|)|). :)i I (K 1). Miiii. i<mi). 

(i'J. ///. .11 r)IH-Mt. 

(>;<. Sir li-\l .111(1 nolfs .11 iiolcs ">.■<-."> I \iij)in. 

()l. Sir Coiiinuiniu N'.iil H.iiik \. S.ixoii. .UO V Md Tl\, 225 ((iili Cir. \\){V2). 



LICENSING DECISIONS OF BANKING AGENCIES 97 

ultimate judgment "m appiovmg or disapproving a charter or 
branch, the passage shows an attitude that was pervasive at the 
time. 

By the early 1960s, then, the licensing decisions of the Comp- 
troller and the Bank Board were as impenetrable a mystery — or 
"congeries of imponderables" — as ever. Neither policy statements 
nor regulations provided a clear understanding of why decisions 
came out as they did, and no written opinions were issued at the 
end ot the process to provide at least retrospective enlightenment. 
Competing banks were able to get a court to look at and at times 
overrule the Comptroller's constructions of state law branch lo- 
cation requirements but otherwise he was having no difficulty 
defending his results in court. '^'^ This period proved to be the high- 
water mark of judicial deference to the Comptroller's informal 
ways and unexplained actions, and the tide turned swiftly. 

C. The Smithfield Case and Its Aftermath 

The landmark decision caine in 1965: First National Bank of Smith- 
field V. Saxon. ^^ It presented the familiar situation of a competing 
bank objecting to the Comptroller's approval of a branch, but the 
Fourth Circuit came at the problem from an unfamiliar angle. The 
plaintiff had won in the district court on the ground that the APA 
required the Comptroller to conduct an adversary hearing."^ The 
Fourth Circuit, as had others before it, rejected this argument, 
holding that neither the APA nor the requirements of procedural 
due process commanded that the Comptroller proceed by way of 
an adversary hearing."" 

But then the court turned to the question of how, in the absence 
of a trial-type hearing and findings based on an evidentiary record, 
judicial review could be achieved. As the majority of the panel 
saw it, a "substantial evidence" scope of review was out of place 
in these circumstances; instead, it remanded the case to the dis- 
trict court for a trial de novo: 

On the remand of this case, the plaintiff may adduce evi- 
dence demonstrating the impermissibility of the Comptroller's 

(if). SVv. r.i^.. Conlinciu.il K.mk \. X.ilion.il Cilv H,mk. 2 13 I'. Su|)|). ()H1 (N.I). (Miio 
I'.Hi;-)): li.ink ol Dt-.ii Ix.i n \. S.ixoii. LM 1 1-. Siii)|). :<<) 1 (K.I). Midi. \W'i). nf/ /I. Ml F.'Jd 1«Wi 
(flili Cii. MM)7): I'cnplcs li.mk oi I iciiK.ii \. S.ixoii. L' 1 t !■ . Supi). :iH<)(K.I). Midi. I Wi,')), «// V/, 
:<7:i \ .2<\ IH.-) ((iili Cm. \'U)7): ( iomuicK i.il Set. ii.iiik \. .S.ixoii. 2M) \- . .Siip]). \'u (D.D.C. 
I9(i)). 

fW). :V')L' !• 2<l '-'()7 ( III) Cii. I'KiJ) 

(i7. liiM N.il'l IVink ol Sinillilidd \ liisi X.iil li.mk ol K. Xoilli ( ;,ii oliii.i, 'J:V2 K. .Siipp. 
12', (l-..!).\.(. I<)(, I). 

(iM. JiiM \,,ri M.iiik ol Sinnlilidd \ S.ivoii, ;<.'>2 l-.LM L'()7 (lili Cii. 19(1.')). 



98 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

approval of a branch bank at Smithfield. Testimony to the 
contrary will be receivable from the Comptroller. The Court 
will then find the facts. Thereon, it will judge de novo the val- 
idity, in fact and in law, of the Comptroller's final action. 

... If after the court has made its fact findings, it then ap- 
pears that the decision of the Comptroller is dependent upon 
an exercise of discretion, the Court cannot substitute its dis- 
cretion for the Comptroller's. However, it can set aside such 
a determination if, in the light of the facts found by the Court, 
it concludes that the Comptroller has abused, exceeded, or 
arbitrarily applied his discretion. ^^ 

The problem seen by the majority in trying to "review" a totally 
unexplained decision was undeniably real, but the dilemma created 
by its solution was effectively pointed out by Judge Sobeloff in dis- 
sent: 

How can the District Court conduct a proper examination 
if the Comptroller has not disclosed what issues he is resolv- 
ing? The District Court is told to make its own de novo fact- 
findings, but it is still in no position to judge how far the 
Comptroller's decision rests upon fact-findings which the 
court deems erroneous and how far it is an exercise of discre- 
tionary judgment. . . . 

The Comptroller has not divulged his mental processes, and 
his determinations of fact, rulings of law and exercises of 
discretion and judgment are inextricably intermingled. The 
District Court is thus placed in the unhappy position of choos- 
ing between two equally unacceptable alternatives. Either it 
must blindly assume that the Comptroller's discretion rests 
upon an adequate basis in fact, in which event the court review 
almost inevitably becomes a meaningless gesture; or the Dis- 
trict Court, proceeding upon the basis of facts independently 
determined by it, must act in ignorance of the nature of the 
decision it is reviewing, in which case the court's judgment is 
liable to usurp the Comptroller's function.^" 

The course of judicial review since Smithfield can be seen in pre- 
cisely the terms Judge Sobeloff predicted: a fluctuation between 
the unsatisfactory poles of futility and usurpation. 

The latter outcome promptly became evident in Bank of Haw 
River v. Saxon.''^ Finding the Comptroller's hearing inadequate, 

M. I 'I. ,11 'J7L'. 
7(1. /,l. ,11 27 1. 
7 1. L':)7 1-. Sii|)|). 74 (M D.N'.C. 19C)(")). 



LICENSING DECISIONS OF BANKING AGENCIES 99 

the district court proceeded with review de novo, and in the pro- 
cess became Comptroller for a day. On the basis of the testimony 
in court, which went "far beyond that which was before the Comp- 
troller,"^^ the judge defined the service or trading area of the 
branch and concluded that the area was "already considerably 
over-banked. Since the present ratio of existing banking offices to 
population is far in excess of both State and National averages, 
there can be no question but that the existing banks, with resources 
well in excess of two billion dollars, amply meet the capital needs of 
the Graham-Burlington area."^'^ The judge also decided that, due 
to a slow rate of population growth in the locale, it would not be 
economically feasible to establish a new banking facility in the area. 
He concluded: "No public interest, need or necessity has been 
shown for the establishment of a branch of First National in 
Graham, North Carolina, and it is impermissible for the Comp- 
troller to approve the establishment of such a branch."^'* 

When the grounds for decision are made explicit, as in Haw 
River, it becomes possible to subject them to examination and cri- 
tique, and the opinion in Haw River certainly shows the risks that 
such scrutiny entails for the decision maker. The ratio of banking 
offices to population in a somewhat arbitrarily defined service area, 
as compared with state and national averages, had become the 
measure of need — a measure that, in the very nature of an aver- 
age, would lead to the conclusion that something like half of the 
country at any given time is "over-banked", and always will be, 
which might lead one to question either the suitability of the mea- 
sure or its significance. 

From the Comptroller's standpoint, however, the most impor- 
tant aspect of a decision like Haw River is that it demonstrated the 
potential of de novo review for taking over his functions — not 
necessarily performing them more poorly, but depriving him of 
one of the major sources of the power and prestige of his office. 

Efforts were soon made to extend Smithfield's de novo review to 
a theretofore sacrosanct area: charter decisions. In Webster Groves 
Trust Co. V. Saxon J^ the Comptroller was for the first time subjected 
to judicial review of a charter decision, in this instance at the behest 
of a competing bank objecting to a grant, but the Eighth Circuit 
refused to take the additional step of review by trial de novo. 



7'.'. hi. at T'l. 

7:5. 1,1. 

71. hi. .11 HO. 

75. -MU 1-.2(1 W\ (Kill Cm. 1966). 



100 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

The Comptroller is free to exercise his discretion in the grant- 
ing of charters, free from any review on the merits of his ac- 
tion. However, if the Comptroller acts in excess or abuse of 
his legal authority, to this extent his actions are subject to ju- 
dicial review, with the burden of proof resting on the party 
seeking the review. ^^ 

Of course, if the Comptroller never disclosed the basis for his ac- 
tion, it would be rather difficult for the party seeking review to 
show an abuse of discretion. In effect, this was the other pole of 
Sobeloff's dilemma: the futility of judicial review. 

When a charter case came before the Sixth Circuit in Warren Bank 
V. Camp,'''' it adopted a more qualified position on the scope of re- 
view, reading the branch and charter cases together as conferring 
on the district courts "a considerable discretion in determining the 
form of review required. "^^ In this blurring of prior distinctions, 
a trial de novo would not be required for every complaint, but only 
where the plaintiff had made out "a prima facie case of abuse of 
discretion. "^^ In an effort to do that, plaintiff moved to take the 
depositions of the Comptroller and several subordinates, but this 
was denied, absent a showing of "a prima facie case of miscon- 
duct."^" "What appellant seems to us to seek is an opportunity to 
depose the Comptroller in order to probe his mind as to exactly 
why he saw fit to exercise his discretion as he did in relation to the 
grant of this charter. This appellant clearly was not entitled to 
do,"^^ noted the court, citing Morgan IV .^^ The result was to sug- 
gest that review de novo might be available even in the charter 
area, but to establish preconditions that seemed unlikely of ful- 
fillment. 

Even if the effects of Smithfield were to be largely confined to 
branch cases, however, that was still quite enough to have a major 
impact on the Comptroller's office. The Smithfield court had 
grounded the need for review by trial de novo on the Comptrol- 
ler's "unilateral procedure," which, lacking any form of adversary 
hearing, deprived his fact findings of "the preferred position ac- 
corded by the substantial-evidence rule" and of any "opening-pre- 
sumption of correctness."^^ To regain that preferred position, the 

76. Id. .11 S88. 

77. ;W6 K.2(l 32 (6ili Cii. 19(i«). 

78. hi. M 5(i. 

79. Id. 

80. Id. 

81. Id. 

82. Lnitcd Stales \. Moijj.im. ;U:< I'.S. 409, 121-22 (194 1). 

8:^. First N'.it'l B.iiik ol .Smitlilicid \. Saxon, Wb'! K.2(l 267, 272 (Itli Cii. 196.')). 



LICENSING DECISIONS OF BANKING AGENCIES 101 

Comptroller's office in 1966 set about redoing its procedures.**'* 
Most of the application and field examiner's report were made 
available to the parties, and "conferences" with a member of the 
Comptroller's staff were replaced by "hearings" with all parties 
present, of which a transcript was kept. The Comptroller even be- 
gan preparing written opinions in some contested branch cases in 
which litigation was anticipated. The result was to put the Comp- 
troller in a position similar to that already achieved by the Bank 
Board, so that he was able to offer the reviewing court a fairly 
thick record, replete with data and arguments, instead of a mere 
order defended by procedural breastworks of burden of proof 
and prima facie case. 

Under his new procedures, it became the Comptroller's tactic 
when confronted with a complaint to submit the administrative 
file to the court and move for summary judgment. The administra- 
tive file usually had portions deleted as confidential or protected 
by executive privilege — for example, when they involved reports 
of examination of a bank, intra-agency memoranda, derogatory 
letters, or trade secrets. But a good deal of data and testimony 
could be found scattered through the record and, in some cases, 
brought together in an opinion to justify the agency's conclusion. 

The new procedures came back before the Fourth Circuit in 
First-Citizens Bank and Trust Co. x'. Camp^^ and had the desired ef- 
fect. The court found that the Comjjtroller had provided the "ad- 
versary hearing" that was lacking in Stnithfield, even if the panel 
conducting the hearing before the Regional Comptroller was no 
more than "an investigatory or fact-gathering organ, not having 
any fact-fmding function.""" Plaintiff was therefbie not entitled 
to a hearing de novo in the district court; instead, "the scope of re- 
view should not be more rigorous than the sub.stantial evidence 
rule.""^ With the aid of the Comptroller's oj)inion, the coint con- 
cluded that the substantial evidence test was met, and the branch 
approval was upheld. If a sigh of relief issued from the Comj:)trol- 
ler's office, however, it proved to be short lived. 

D. The Search for Standards 

Another significant decision in the banking field had occinred 
in 1966, with the Suj^reme Court's construction of section 36(c) of 
title 12 of the United States Code in First National Bank of Logan x>. 

Ml. I he Inllovs iiiil; (lcs< I i|)li()ii isl.ikcn liom lilooiii. \/(//u( iiolc l:l..il 7 '_'.') -'_'(). 

«:>. lO'.l I- I'd |()M(i ( llh (.11. l'.M)<l). 

H(i. /,/. ,11 1()<)(). 

M7. hi. .11 109.'). 



102 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Walker Bank ^ Trust Co.^^ That statute authorized "inside" branches^^ 
for national banks "if such establishment and operation are at the 
time expressly authorized to State banks by the law of the State in 
question." Utah had a "home office protection" type of branching 
law, which forbade banks from opening branches in a municipality 
in which other banks were operating, except by buying out one of 
the existing banks and taking it over as the branch. The then 
Comptroller, James J. Saxon, believed in aggressively expanding 
the powers and activities of the national banking system to their 
fullest statutory potential; he argued that the Utah statute "ex- 
pressly authorized" branching and that was enough for section 
36(c). Since in his view the Utah takeover restriction was a mere 
specification of "method" not incorporated by section 36(c), the 
Comptroller proceeded to authorize de novo branches for two 
Utah national banks. 

The Supreme Court, in a unanimous opinion, gave the Comp- 
troller short shrift: 

It is a strange argument that permits one to pick and choose 
what portion of the law binds him. Indeed, it would fly in the 
face of the legislative history not to hold that national branch 
banking is limited to those States the laws of which permit it, 
and even there "only to the extent that the State laws permit 
branch banking." Utah clearly permits it "only to the extent" 
that the proposed branch takes over an existing bank. 

... As to the restriction being a "method," we have con- 
cluded that since it is part and parcel of Utah's policy, it was 
absorbed by the provisions of §§ 36(c)(1) and (2), regardless 
of the tag placed upon it.^" 

In itself, Walker Bank did not seem of great import, since it merely 
knocked down an attempt by the Comptroller to let national banks 
have de novo branches where state banks could not. But a number 
of lower courts started seeing more in it than that. 

One of the problems in attempting to review decisions by the 
Comptroller under section 36(c) was that the statute contained no 
standards whatever for approving branches. Even under a limited 
scope of review like the substantial evidence test, it is necessary to 
ask: substantial evidence of what? It is possible to more or less duck 
the question when the court is deciding for itself, as in Smithfield's 
review de novo, or is giving the form of review with little substance. 



88. 385 U.S. 252 (1966). 

89. See text at notes 31-32 supm. 

90. 385 U.S. at 261-62. 



LICENSING DECISIONS OF BANKING AGENCIES 103 

as in telling the plaintiff that he has failed to discharge the burden 
of showing an unexplained decision to be arbitrary, but it is harder 
for a court to duck while at the same time it is maintaining that 
the decision rests on substantial evidence. 

In First-Citizens, the Fourth Circuit filled the void by using Walk- 
er Bank to incorporate in section 36(c) all the standards and find- 
ings required by North Carolina law and not just its restrictions on 
the "extent" of branching allowed state banks. North Carolina is 
a statewide branching state that does not restrict the "extent" of 
branching at all, but it does set certain standards for the exercise 
of the state bank commissioner's approval authority: 

Such approval shall not be given until he shall [find] (i) that 
the establishment of such branch or teller's window will meet 
the needs and promote the convenience of the community to 
be served by the bank, and (ii) that the probable volume of 
business and reasonable public demand in such community 
are sufficient to assure and maintain the solvency of said 
branch or teller's window and of the existing bank or banks in 
said community.^' 

Although the Comptroller, with reason, argued that Walker Bank 
did not face and decide the question of whether such broad criteria, un- 
related to either the geographical location of branches or the 
"manner" of obtaining them (by acquisition or de novo establish- 
ment), were intended to be imposed on the Comptroller by section 
36(c), the general language in the opinion about not picking and 
choosing what portion of the law would bind him was apparently 
enough to cost him the day; the court held that he was bound by 
North Carolina's "need and convenience" and "solvency of the 
branch" criteria. The Fourth Circuit conceded that these were 
"nebulous concepts, "^^ resulting in a "lack of definitive direction,"^"' 
but at least they were better than the National Bank Act and pro- 
vided the court with some basis for purporting to give substantial 
evidence review. 

The Comptroller, consistently with his view of Walker Bank, had 
not expressly made even these vague findings in First-Citizens, 
but the court was willing to infer them from the general matters 
discussed in his opinion and the fact of his ultimate conclusion of 
approval. Although a number of other courts, both before and 

91. N'.C. (.EN. Stat. § 53-62(1)) (196.')), qiiolrfl in Kiisi-C;iti/cns Bank &.- liusi Co. \. 
Camp, 409 F.'id 1086. 1090 n.5 (4tli Cii. 1969). 

92. 409 F.2cl at 1091. 
9:1 Id. at 1094. 



104 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

attei" First-Citizens, agreed with the proposition that section 36(c) 
incorporated all state law standards and findings, the Comptrol- 
ler did not readily acquiesce and continued in many cases to omit 
express findings in the terms required bv state statutes. ^^ Finther- 
more, afier 1971, the Comptroller cut back on the practice, begim 
in 1966, of writing opinions in contested branch cases.**'' 

Since the reviewing coiuts were agreed that Walker Bank made 
any required state law findings binding upon the Comptroller,"*' 
they were in an awkward position. Some coints were willing to con- 
tinue to find the necessary state law determinations "implicit" in 
the Comptrollers approval and review on that basis. "^ On oc- 
casion, the Comptroller wrote an opinion after the case went to 
court, and made the state law findings expressly. "*• But in other 
cases, where there were no opinions and no state law findings, the 
court was unwilling to indulge in implications and simply reversed 
the Comptroller outright and remanded to him for reconsidera- 
tion."" 

The matter came to a head in First Xational Bank of Cataiuba 
County X'. Wachox'ia Bank and Trust Co.*"" In a one page per curiam 
oj)inion, the fourth Circuit affirmed an injunction against the 
Comjitroller's issuing a branch certificate: "[\V]hen the Comptrol- 
ler expressly declined to make the findings required by § 53-62(b), 
although he made numerous other findings, he acted arbitrarily 
and capriciousl) in approxing VV'achovia's application to establish 
a branch. . . ."'"' Faced with what amoiuited to a rule of automatic 
reversal, the Comptroller gave up and thereafter conceded, at 



'.)l. S,,.,,- . Aiiuiu.m l^.mk M- I i uM Co. v. S.i\on, M:S l-.'Jd L'Sl^. 291 (liili Cii. 19(i7): 
{.iii/ciis N.n'l IVuik ul S. \l(l V. (.imp. :n7 V . Siipp. \:\i<\). WXl (1). Md. HITO): IndiiMii.il 
Sl.iu- K.iiik \. {:.iilil>. -'^' ' "^"M'l' ■'""■ ■'"--"•^ (W.l). Mitll. HlfiS). vitrrili'l as moot. Vl\ IMM 
\M\\ ((iili Cii. hUi<)). 

<):>. (/. CKiiiK.iii N.iil B.ink \. Ciu/ciiNlMiik. VIW I-. Sii|)i). 1 .VU . \yM\ (S.I). Oliio I5I7I), 
I Ik- pi.mur li.id III .in\ r\iiu l)»iii l.iij;il\ divoU'd lo Ni>iili ( ..uoliii.i t.iM-s. 

•IC). rliiN loiuluMdii u.iN snmruli.il M nn!L;lluiu-d l)\ llu' (it.ilion ol Wdlhii liiiiik \\\ lirsl 
N.iil li.iiik III I'l.iiii ( ii\ \. DukiiiNoii. MM\ r.S. \'1'1. \W (n»(i'.»). lor ilir iiroposiiioii ili.ii 
M.ili- l.iu toiUioK 'xvlun. wluif. .iiid liou" 1)1.1111 Ik-- iii.i\ Ik- .iiillioi i/rd loi ii.ilion.il b.iiiks. 
Sit iiImi ul . .il WV) (l)oiii;l.iN. |.. disMilIiUi; l)til ,ii;utiiii; willl Jjliiposii ion M.iU'd). 

'.)7. S,-, . ,.!;.. CKiiiioiii Will li.iiik \. Cni/riisb.iiik. '.VI') 1'. Siipp. WWW. KM 1-1.") (S.l). 
Oliio l'.)7l). liisi \.ii 1 IVmk ol i.iiil).mkv \. (.imp. :V_'(i V. Siipp. .'> 1 1 . .')!.■■) (D.IVC. 11171). 
-///■'/. iii.-) i .'_>d ,-)S(l, ,")'.I7 i.UX.. (ii. H)7'J). («;/. ilniird. \W IS. 1 1 '_' I ll'.t7:5). f./. l-.irmi-i-« 
N.iil IViiik \. (.imp. :l 1.") 1 . Siii)p. (i'J'J. (i'J'.l (1). Md. 1'.I7 1). 

9S. .S,7. r.'^.. Citi/i-iiN N.ii'l B.iiik 111 (..iMoiu.i \. W.ulioM.i h.iiik ><.• liiiM Co.. :^'J9 K. 
Siipp. "iS.-) (M.D.N.C. 1M71). 

W. Sn.r.ii.. Cili/i->i- N.'i I l^-"'l- ol "^ M'' ^ ( .iiiip. ^17 I. Siipp. l;^S',) (IV Md. I'.t7()). 

100. I I.S l-.L'd &M ( till Cii. 1'.I71). 

10 I. /'/. .11 (liiS. 



LICENSING DECISIONS OF BANKING AGENCIES 105 

least in the Fourth Circuit, that he was bound by state law findings 
requirements.'"^ 

What had been gained, or lost, in this running battle? The 
Comptroller apparently feared that his approval discretion would 
be hobbled by a tangle of state statutory findings and fought tena- 
ciously to avoid it. Most state statutes, however, where they con- 
tained any standards at all, were as "nebulous" and lacking in "de- 
finitive direction" as the Fourth Circuit found North Carolina's 
to be,**^^ or as the Comptroller's own earlier list of "pertinent fac- 
tors. "**^^ By the same token, reviewing courts actually gained little 
in the way of standards or findings by which to examine a record 
for substantial supporting evidence. In any but a superficial sense, 
the Comptroller was about as free and the courts as much at sea 
as before. Looking ahead, it was possible that the state standards 
would gradually undergo a process of judicial construction and 
administrative interpretation that would give them real meaning, 
and perhaps it was this kind of development that the Comptroller 
sought to avoid. '^'^ For the moment, however, it made little real 
difference if the Comptroller was forced to express his conclusion 
in terms of boilerplate findings like "needs and convenience" and 
"public advantage" taken from state statutes. 

E. Probing the Comptroller's Mind and Files 

Although the Comptroller has under duress provided some 
form of opinion or findings at times in branch cases, charter de- 
cisions are another story. The Comptroller has never written an 
opinion in a charter case, and the courts have tended to regard 
his discretion in charter decisions as especially unfettered and 
their scope of review as correspondingly more narrow. For over a 
century the Comptroller was never taken to court over a charter 
decision, so far as the records show. The first party to do so was a 
competing bank complaining of a charter approval, in Webster Groves 

102. U.iiik ol \cu Ikiii \. W.kIiom.i li.ink ^- I i iisi Co., :'<y.'> \ . .Supi). 6l,S, ()4ti (K.D.N.C. 
\972). In nllifi (IK nils, llif ('.c>iii])li()ll(i li.is (onlmiic-d to icsisl. Si-i\ r.j^.. Firsl B.iiik ^ 
Tmsi Co. \. Smiili, 'A)'.) 1-.2(1 M:'> (1st Cii. l'.)?.")). 

]().'>. Sff icxt and note at iioic 92 m//»«. 

10 1. 12 C.l'.R. 8 l..")(.i)(l) (19.")<.t); wr iixt .md iioif at iiotr II siij)ia. This icirulation was 
rcxokcd on Irb. I I, I'M't'.'i (2H lid. Kci;. l.'iHl). .i\\(\ lias not been sul)sc(|iu-ntlv ic-placfd l)y 
,\\\\ list oi ,1 snnilai natiM e. 

10:') llouixci, st.iK- Milii piftalioMs ol slate standaids have not tints lal been accoidcd 
iinuli ol a toll- imdfi section ;<()(<). .S/r, I'.j^.. Ill st Hatik ^ liiist Co. v. Siiiitli, 309 F.2d 
()(iS. (ititi 11.2 (1st Cn. 197.")): lirsi Nat'l Bank ol Fairbanks \. Camp, Ifif) F.2d "jHCi, 59:^97 
(l).C. Cn. \\)l'2).(nl. ihiiii'il. 109 f.S. 1121 (197:V); llowcll \. Ciii/cns First Nat'l Bank ol 
Kidj^fuood. :<«;■) F.2(l 328. :^'M) (\\d Cii. 1907). 



106 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Trust Co. I'. Srt.vo/r'"^ The Comptroller contended his action was 
not subject to judicial review and plaintiff had no standing, con- 
tentions that rini through many of these cases with a uniform lack 
of success.'"' But if his decision was in principle reviewable, the 
absence of any opinion or explanation made review undeniably 
difficult. The court handled the case before it by putting on the 
plaintiff the burden of showing that the Comptroller had abused 
his authorit), and then holding that burden unmet.'"** 

Under the circumstances, how could the burden be met? Ob- 
\iously, the plaintiff would ha\e to find out the reasoning that 
had led the Comptroller to his conclusion before he could demon- 
strate something wrong with it. In Warren Bank v. Camp,^*^^ the 
plaintiff was denied the right to seek that information directly by 
taking the depositions of the Comptroller and several subordi- 
nates."" The only other possibility was careful examination of the 
administrative file, in the hope that internal inemoranda and rec- 
ommendations would disclose the basis upon which the final de- 
cision was made, and a number of cases tried to pursue such an ex- 
amination. 

It was an approach with inherent limitations — what would you 
learn about the reasoning behind the Comptroller's approval of 
a charter if, for example, what the file contained was staff mem- 
oranda recommending denial? That was the situation in Sterling 
\ational Bank of Davie v. Camp,^^^ but there was a thick file " 'replete 
with evidence which would support either view,' ""^ and the court 
was untroubled: 

Although we cannot chart the subjectives of his discretionary 
decision, it was obviously based on a composite of many factors 
and much data. To say that one fact was erroneous and that 
another fact was askew is not to infest the Comptroller's ex- 
ercise of discretion with the scent of arbitrariness or capricious- 
ness sufficient to set aside his decision."^ 

In other words, the Comptroller might have some of his facts 
wrong, but since you couldn't tell what his reasoning process was, 



ll)(l. :17() l-lM :1S1 (Sill Cm. !*)()(,), 

107. I Ik'\ w (.■!(.■ liii.ilK 1,11(1 to ii'si l)\ \ss(K 1.1111)11 <]l D.I 1. 1 I'l otrsMiii; Sci \ . Oi t^s. \ ■ C.mi|). 
MM L .S. !.")() ( I'lTll). ,111(1 („iiii|. \. I'liis. ) I 1 I .S. I.SS ( |<I7:M. 

lOS. \(( ic\i .111(1 iKilrs ,11 niiWs 7.")-7li uijuii. 

1(19. :^'.l(i r.LM .")'-'. ."i(i (l)ili Cm. MI(')S). 

1 in, Sr, u-\l .111(1 noU-N ,11 noU's 77-.^!' ■.ii/iia. 
111. l;n l-.lM .")! I (.")ili Cm. IMi)].!,!/. 'Iniinl. 101 L .S. <)2.') (1 '.)7 1 ). 

1 r.'. hi. ,11 .")ir,. 

1 i:v /'/ ,11 .")I7. 



LICENSING DECISIONS OF BANKING AGENCIES 107 

there was no way to be sure it made a difference, and the plaintiff 
loses again. 

In Olsen v. Camp,^^^ the plaintiff was for the first time a charter 
applicant seeking judicial review of a denial, a category of case in 
which going to court is even more unrewarding because of the 
limited remedy available. '^^ The plaintiff sought discovery of the 
administrative file, but the Comptroller claimed executive priv- 
ilege for a substantial portion relating to the applicant group's 
background and connection to certain other banks with which the 
banking agencies were having supervisory differences. Since it 
seemed likely this was the primary ground of the decision in the 
case, the court was unwilling to simply uphold the claim; it ordered 
some of the documents produced and the rest submitted to it in 
camera for review, partial excision, and release. 

Similarly, in Klanke v. Camp^^^ the court ordered the Comptrol- 
ler to release to the plaintiffs "all Government records pertaining 
to the denial of plaintiffs' charter application,"**^ though it later 
allowed part to be withheld. But the court itself characterized ob- 
taining judicial review based on the administrative file as "a hol- 
low victory," since the Comptroller would be "insulated from judicial 
interference merely upon evidencing a minimal basis in reason 
for his denial."**^ The accuracy of that characterization was sub- 
sequently borne out, when the Comptroller obtained summary 
judgment because the plaintiffs had not discharged the "onerous 
burden" of showing that the Comptroller's decision was "totally 
devoid of any rational foundation."'*^ 

There were also attempts in some of the branch cases to open up 
the administrative file more fully, in an effort to ascertain the 
basis for decisions. Thus, the protestant in Citizens National Bank 
of Southern Maryland v. Camp^"^^ wanted to know the full content of 



1 I 1. :V_'S 1-. Su|)|). 7'2H (F..D. Mitli. 1970). 

1 1.'). II ,1 ( oni|)ftiiig hank picxails in a t li.illcnuc lo a bi.nKli or (liailci a|)])i<)\al. it gets 
an in)uiKlii)n .\n(\ ll)crcl)\ blocks oi (ifla\s llic .iddilioii.il tonipclilion. Bui it an .ippiit.ml 
wcic- lo siu ii-ssi ulK thailcngc a (ic-nial. il would not gel an oidi'i lo llii- (;on)|)trolk'i lo is- 
sue ilic dfsiicd appidxal, lor iliai would in cllcil be in,ii)(lamiis iclicl which is noi a\ailabic 
111 so ludniiRMilal and disc i clionar\ an aica. Sec. cti-. B\sc ^- Kiocca, Snlioii 1361 of llir Maii- 
il/iiiiii\ mill I'nnir Ad nj 1962 (iiul "Xiitisltil iilinx" jmliiKil Rf\ii-a< (ij hdlcKil Adminisluilivc Adioii. 
HI H\K\. I. Ri\ :'i{)H. 'M\2 (19b7). Iiislcid, il would gcl a icniaiul to the (;oin|)lrollcr with 
insli u( lions lo c oi i c-c l Ins ci i oi s and i cconsidc-i , a pi i/c- ol dubious value il ihc (loinpnol- 
Ic'i 1 cm. nils nnla\ oiabU iiu lined 

I Hi. :V2i) \ Supp. I IH,') (S.I). Ic'\. l'.)7()). 

1 17. III. al 1 IHH. 

UK. III. 

I 19. kl.inke \. Camp. :V_'7 I- , Supp. .')9'J. .")9:^9 1 (S.l). lex. 1971). 

120. Ml I- Supp. \:W) (1), Md. 1970). 



108 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

the application and administrative file, parts of which had been 
withheld as confidential. He obtained a judicial order that, after 
remand, any undisclosed material should be submitted to the 
court in a sealed record for in camera inspection. 

Over the course of the decade, therefore, the Comptroller had 
been forced to reveal most of the administrative file on branch 
and charter decisions, though he was still keeping a portion of it 
confidential, at least from litigants. Once revealed, however, it 
proved only moderately enlightening. For a court concerned only 
lest the Comptroller be doing something totally absurd or imfair, 
the contents of the file were generally sufficient to support an af- 
firmance. But for anyone seeking to understand the Comptroller's 
values and policies and reasoning process, a file filled with varied 
and confiicting views of subordinates provided disappointingly 
little help. 

F. The Renewed Assault 

To sum up "progress" by 1971, then, the Comptroller had been 
led, or coerced, into adopting a more formalized hearing proce- 
dure. As revised anew in 1971,'^* the Comptroller's regulations 
required notice by publication of applications for branches or 
charters, and the Regional Administrator of the Comptroller's of- 
fice was required to notify local banks. '^"^ On request, a hearing 
would be held, primarily as an opportunity for protestants to 
voice their objections. The application and field examiner's re- 
port and any filed objections were part of the public file, except to 
the extent parts were excluded as confidential.*^^ At the hearing, 
the applicant would usually introduce his application and rest, 
leaving it to the protestants to call witnesses (whose attendance 
was volimtary and testimony unsworn) and submit evidence. 
Though all parties were in the dark as to the Comptroller's pre- 
cise standards, if any, there was a customary pattern — the protes- 
tant would try to show that the described service area was too 
large, that when properly drawn it was overbanked already, and 
that the local economy was stagnant, while the applicant would try 



121. :Ui led. Reg. (i88H (1971). 

122, 12 C.K.R. § 3.2 (1971). 

12l<. /'/. .It (j :■>.'.'>. MosI ol the c-xiliisions ,iie b.ised on (l.iiins thai llio mlorm.ition loii- 
sists ol either business ti.ule seerets oi <lei og.iioiA loiniiuiiis on tiie ,i|)|>lK.mt or protest. nils. 
Reii.iiue on the l.itiei i.iises piohlems lainili.ii lioin tiie <l.i\s ol the eniplo\ee lo\.ill\/sceui- 
it\ progi.iins. Q. C.aleteiia & Restaiiiant Workeis Inioii \. McKliov. :i()7 I ..S. 8()() (1961); 
(".rccne \. MeKliov, MM) L'.S. 474 (1959). liui in \ei\ leu c.ises do such lonsidei .itions seem 
to he ol .utiial nnportaiue in liie oiUKinie. See text .it note 2N iii/m. 



LICENSING DECISIONS OF BANKING AGENCIES 109 

to show the opposite. A transcript would be kept, at the protes- 
tant's expense, which if counsel were adept would be " 'replete with 
evidence which would support either view' " and contain "many 
factors and much data."'^"* Some time thereafter, the Comptroller 
would announce that he had approved or disapproved the appli- 
cation. 

If it was a charter case, the Comptroller never wrote an explana- 
tory opinion, though when he was taken to court in Klanke v. 
Carnp^^^ he did submit an affidavit which "explained" his denial on 
all available grounds. '^*^ By restricting its scope of review and put- 
ting all the binden on plaintiff, the court was able to find such a 
purely conclusory "explanation", or none at all, sufficient. 

For a while, the Comptroller wrote opinions in some branch 
cases, but then he decided to ctit back. Under the new practice, 
apparently the Comptroller would wait to see if suit was filed, and 
then supply some explanation if necessary by requesting a remand 
for that purpose'"'^^ or by simply mailing out a belated opinion.''^" 
The coints insisted that the Comptroller's opinion or administra- 
tive file in some way support the findings required by state law, 
but those too were "nebulous" and unhelpful. 

In short, half a dozen years ot litigation thiough numerous cases 
had accomplished remarkably little in imderstanding just why the 
Comptroller decided as he did.'"^** Once again, judicial patience 
wore thin, and a series of reversals for the Comj)troller followed. 

The district court in Bcnik of New Bern !>. Wcichovid Bank ^ Trust 
Co.'"'" contemplated North (Carolina's nebulous standards for 
branches and felt "constrained to establish its own guidelines," 
coming up with a list of se\en factors.''" The court then apjilied 

I'J I. Srr lc\l .iIkI IK.ICs .11 nous 1 I l-l:^ ui/iiO- 

PJ'). :V_'I) 1-. Su|.|), I IS") (SI). I ex. I'lTD). 

r_'(). I he ( ;<)in|)li (illci inloinicd llic loiiM lli.tl lie 

vs. IS ( oin iiu cd. .iinont; (illici ic,is(;iis, ih.n iluic w.is im ,i(l(i|U.iii iiciil Ini ,i h.iiikiiit; 
I.Kllils .11 llic |)iii|i()sc(l !()( .11 iiiii: ill. II llic .iliilil\ .mil (A |)(i iciK (■ (il llic |)i <i|)(is((l oi- 
^.iiii/cis \\.is insiil I K Kill ; lli.il llic i ((iiicsici I new li.nik wciiild ikiI he sikicssIuI iiiulci 
ils |)l nposcil Ic, 1(1(1 sliip; lli.il llic i)l)|c(ls ( ( ii il cm | )l.il c(l li\ llic N.ilKiii.il K.iilk \( I 
would iiol lie sci\cd; .iiid ili.u llic i;i.iiilmn ol llic (li.ulci .i|)| )li( .il ion would he 
dell imciil.il 1(1 llic piiMu iiilci csi . 
hi. 

I'iT. Sn: r.fi.. iMiiiicis N.ill B.iiik \. (.imp. M^ I . Siipp. ()'_''_'. ()'_' I (I) \ld. I')7I). 
12H. Sir Cili/cns \.ii 1 IVmk iii (..isiom.i v, W.kIiom.i B.iiik .v;. Iinsi Co.. :('_".! I- . .Supp. 
.')«.">. .")«() (M.D.N.C I '17 I) 

lU'.l. In Hl()') I'lolcssoi I). IMS ihonnlil lie (ould (lis((iii .1 sinnirK.iiil lieiid in llic ( (iinp- 
IKillcrs olJKc low. 11(1 le.isoncd opinions .nid (oniiollcd dis(iciioii. Iml llic liciid iinloi- 
lUM.iU'K died .il)ol iimi; Sir l\ I) \\ is, I )|S( |<| 1 ion \ i<\ 1 1 s i |( 1 I '_'l)-'_'(i ( | 'Ki'.)) 

\:u). wy. \ Snpp. G\:\ (i-.i).\ c. iutJ). 
\:u. hi. ,11 (ii7- IM 



110 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

these factors to the record evidence and Comptroller's opinion, 
attached its own weights, concluded that there would not be sub 
stantial evidence to support an approval, and accordingly granted 
the plaintiff summary judgment against the Comptroller. New Ber 
is not far removed from Haw River^^^ in its willingness to take over 
the Comptroller's function, though it employed the language of 
substantial evidence review rather than review de novo. 

In Pitts V. Camp,^^^ the Fourth Circuit encountered its first case 
of charter review. Apparently there were no serious protestants, 
for no hearing on the application was requested or held. The 
Comptroller disapproved the application and as usual wrote no opin- 
ion, simply informing the applicant by letter that: 

On the basis of information developed by our Field Investi- 
gation, together with all other pertinent data relating to the 
proposal, we have concluded that the factors in support of the 
establishment of a new National Bank in this area are not 
favorable.*^^ 

Upon requesting and receiving reconsideration and submitting 
additional data, the applicant group got a letter of renewed denial 
and a glimmer of further explanation: "[W]e were unable to reach 
a favorable conclusion as to the need factor. The record reflects 
that this market area is now served. . . ."^^^ The letter then listed 
one bank, two savings and loans and one credit union servicing 
the market area, which in no way distinguished the locale from a 
great many others in which the outcome had been favorable. 

Instead of manipulating procedural rules and a narrow scope of 
review to sustain the Comptroller's ruling, the Fourth Circuit 
pronounced it "unacceptable." "It does not comply with the bare, 
fundamental principle of agency decision: that its basis must be 
stated."'^" The court cited FTC v. Sperry ^ Hutchinson Co.^^'' and 
Chenery P^^ for the proposition that the "orderly functioning of 
the process of review requires that the grounds upon which the 
administrative agency acted be clearly disclosed . . . ."''^^ The court 



132. See text and notes at notes 71-74 supra. 

133. 463 F,2d 632 (4th Cir. 1972), vacated. 411 U.S. 138 (1973), lewanded, 477 F.2d 593 
(4th Cir. 1973). 

134. Id. at 633. This is the standard letter of denial. 

135. Id. 

136. Id. 

137. 405 U.S. 233 (1972). 

138. SEC V. Chenery Corp., 318 U.S. 80 (1943). 

139. 463 F.2d at 633. 



i 



\ 



^ 



LICENSING DECISIONS OF BANKING AGENCIES 111 

remanded the case to the district court for a trial de novo, since 
the Comptroller had twice "inadequately and inarticulately re- 
solved the appellants' presentation."'^" In essence, seven years 
after Smithfield, the court was back about where it started and again 
had recourse to review de novo as a means of putting pressure on 
the Comptroller to change his practices. 

The United States District Court for the District of Columbia 
took a different tack in Wood County Bank v. Camp,^'*^ in form a 
protestant's appeal from a charter approval.*'*^ The district court 
found what none before it had been able to find — a fifth amend- 
ment procedural due process requirement for findings and reasons 
by the Comptroller to support his decision, which the court char- 
acterized as adjudicatory in nature. '^^ Although the court could 
muster little precedent for that requirement, it offered a number 
of "practical reasons" that it found compelling: 

The foremost of these is the facilitation of judicial review. 

. . . The Court is confronted here with an Administrative 
Record of over a thousand pages of testimony, complex tech- 
nical data, and recommendations of the investigating National 
Bank Examiner and various members of the Comptroller's 
staff. For the Court to properly review such a record in as 
complex an area as the banking field and without the benefit 
of the Comptroller's underlying reasoning cannot expeditious- 
ly be done. As Mr. Justice Cardozo said . . . "We must know 
what a decision means before the duty becomes ours to say 
whether it is right or wrong." . . . 

A second important reason for requiring findings is to pre- 
vent a reviewing Court from usurping the administrative fact- 
finding function. For a Court to refrain from such encroach- 
ment of administrative function, a Court must know what 
facts were found. . . . 

A third practical reason for administrative findings is to 
protect against careless or arbitrary action.'*'* 



140. hi. .,1 iVM. 

Ml. :-i4« K. .Su])]). \:V2\ (D.D.C. \9~2), vnralfrl, 1H9 F.2(l \2T.', (D.C. Cin . 197:^). 
142. 1 lie subsl.iiKC was closer lo .i 1)i.iir1i .ipproN ,iI: ihe .ipplit.mt w.is an existing bank, 
ap|)lyii)g lor a new chailer as a bi ant li-subsmuie ni a unii b.mknig state. 
14:i. :V48 K. Snpp. at l:V2,^. 
114. hi. M l:V2(i-27 (looinoies onniied). 



112 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

The court thcietore ordered the case remanded to the Comp- 
troller to supply findings and conclusions "sufficient for the 
Court to grant Plaintiff the judicial review to which it is entitled. "*^^ 
In increasing trouble once more, the Comptroller appealed Wood 
County Bank to the District of Cokmibia Circuit and took Pitts to 
the Supreme Com t on a petition for certiorari. 

G. Pitts and its Interpretation 

The Comptroller in Camp r. P/7/.s'^'' did not challenge before the 
Supreme Court the Fourth Circuit's holding that his letters of ex- 
planation were inadequate for judicial review, '^^ but he did attack 
the procedure of remand to the district court for trial de novo. 
The Supreme C^oiut agreed: 

It is quite plain from oiu- decision in Citizens to Preserve Over- 
ton Park V. Volpe . . . that de novo review is appropriate only 
where there are inadequate factfinding procediues in an ad- 
judicatory proceeding .... [T]he only deficiency suggested in 
agency action or proceedings is that the Comptroller inade- 
quately explained his decision. As Overton Park demonstrates, 
however, that failine, if it occinred in this case, is not a defi- 
ciency in factfinding procediues such as to warrant the de 
novo hearing ordered in this case.'^** 

Instead, said the Coint, the proper remedy for an inadequate 
explanation is to get more, by way of either affidavits or testimony, 
to add to the administrative record. Since the Comptroller had al- 
ready indicated the "determinative reason" for his denial,'"*^ that 
was the ground that had to be supportable on the record with the 
aid of the additional explanation.*'^" If it was not, then the proper 



1 IT). /'/, ,11 I :(•-».». 

I ic. II I IS. i:i,s (|<.i7:m. 

I 17. i(i:i 1- '_'(! ,11 (i:i:^:n. 

I IS II I is. ,11 1 I I- r_'. Ur ii()\() line lilies nl I, Hi ,111(1 (IcU'iiii in, u 11)11 ol llu' ullmi.iU- ii'- 
siili sliniild l)c (lisiiiioiiislu'd lioni de novo U'vicw mi (|iUNli(ins ol \.\\\ : (oiuls loiiliiu'lv i c- 
vuw (|iK-\lii)iis 1)1 l,n\ (Ic HUM) 111 ,i|)|)c,ils liom ,i<liiiiiiisli ,ili\c (Uh iMoiis. .SCr SimiiU- 1 i list .*i; 
.S.iv. B,mk\. B.iiik ol C.il.. IML' i-.L'd IS (Mili Cii . I'lTI). 

I 1',). Ill llic (.1)111 Is iciidilioii, lliis ic.isoii w.is "llu- riiidinn lli.il .i nvw h.iiik w.is .in ini- 
c'tononiK Miiliiic 111 li^lil ol llic h.nikini; lucds .iiid llu- h.inkini^ ^c'^\i(l•^ ,ilii',id\ .i\.iil.ii)lc" 
in llic Mil I oiindinjL; ( oiiiiiiiiiiil\ . ' ill I .S. ,il I l:i. 

I :")(). I lie ,i|)|)i i)|)i i,ilc s 1,1 11 (1,11 (I ol u'\ ii-w lor this jiiii post-, llu- Con it .ilso held. \v;is liial 
ol Mdioii |(I(()(LM( A) ol llu- \l'\; "wlu-tlu-i llu- { loiiipli ollri \ ,i(l)ii(lu .ition u.is '.ii hilr.iiA . 
( ,1 pi i( 11)11 s. ,111 ,1 1)1 ISC ol (lis( I (lion Ol ollu-i \Msi- iiol 111 ,i( ( Ol (Liiu c- u nil l.iw.' " /'/. ,U I I'i, tiiiol- 
in<^ liiiiii ."> r.S (;. !j 7()()(L')(A) ( I'.I70). llu- •■siil)si,iiiii.il cMdcrui.-" n-sl u.is (K-oiiU'd .ippropn- 
.ili- loi u-\u-\\nm riiidini;s h.isi-d on ,i lu-.iiint; u((>rd, wliuli llu- si. mill's in (|lic-sli()ii luMO do 
noi U(|iiiu-. ill t ..S. ,11 III. I'l t-simi.ibh , llu- loi iiu-i si.ind.ird is .i Ic-ss (k-maiuliiij; one .il- 



LICENSING DECISIONS OF BANKING AGENCIES 113 

course was to vacate the Comptroller's decision and remand to him 
for further consideration. 

The Supreme Court therefore seemed to take away the only 
club the Fourth Circuit had found effective in trying to change the 
Comptroller's ways — de novo review. That method had always in- 
volved a more or less open intrusion upon the functions assigned 
to the Comptroller by Congress, and was therefore inappropriate, 
as the Court declared. What was regrettable was the Court's ap- 
parent unawareness of the eight years of running struggle between 
the Comptroller and the lower courts, in which effective judicial 
review had been frustrated determinedly and continuously. 

On the other hand, the Court certainly left the door open for 
the lower courts to force explanations that they could find com- 
prehensible. Indeed, as Pitts made clear, Overton Park had limited 
the rule of Morgan IV, about not probing into the mental processes 
of decision makers by deposition or examination as witnesses, to 
situations in which the decision maker had made formal findings 
on a record.'-^* That overruled Warren v. Camp^^^ and other cases 
holding that the Comptroller could not be examined or deposed, 
and if litigants pursued the opportunity it would become a new 
club of some force. If the Comptroller's inevitable objections about 
the burden on his office were not received sympathetically, he 
would almost surely move to forestall the embarrassments of cross- 
examination by providing fuller explanations — if not in contem- 
poraneous opinions then through litigation affidavits. And if he 
did not, the court was free to remand. 

But if the door to more intelligible explanation was still open, 
the general tenor of the opinion in Pitts was not very encouraging. 
This can best be shown by examining how lower courts have sub- 
sequently used or construed Pitts. The District of Columbia Cir- 
cuit vacated Wood County Bank and remanded it to the district 
court for reconsideration in light oi' Pitts, and the district court felt 
constrained to grant the Comptroller's motion for summary judg- 



i(>r(lin^ ii.iriouci icmcw, bin ilic (lisiini lions invoKcd lia\c ncvci bci-ii very tlcu . lot ex- 
ample, would a rmdiiig iiol supported by cvideute ibai w.is al least substaiuial not also be an 
al)nse oldistretion? Courts now know which language to use, but it is not evident that they 
will go about llieii job niiich dilierently; a distiict court subse(|uently considered the (jues- 
tion in (Menada Bank v. Watson, MU F. Supp. 728, 7:^!^ (N.l). Miss. 197:i), «// V/, 4H« F.2d 
!().')() (r)ili Cii. M)74), and louiul "no substantial dilleience" between the two standards. 
More recent and authoritative, il not more enlightening, discussion may be touiul in Bow- 
man Iransp., Inc. v. Arkansas-Best Freight .Svs., Inc., 95 S. Ct. 4:i«, 441-42 (1974). 

151. .SV^ Citizens to Preserve Overton Park \. Volpe, 401 U.S. 402, 420 (1971). 

152. S96 F.2d 52 (0th Cii. 1968). .SV^ text and notes at notes 77-82 siij/iii. 



114 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

ment, though not without considerable protest. ^^^ The court con- 
cluded with a plaint that in cases like Pitts judicial review was im- 
possible and with a plea to Congress to put the Comptroller under 
the hearings and findings requirements of the APA. 

In First National Bank of Homestead v. Watson,^^"^ a competitor 
challenge to a charter approval, the court cited Pitts for the prop- 
osition that, absent a showing that his action was arbitrary or 
capricious, the Comptroller was under no obligation to explain 
his decision. ^^^ In Grenada Bank v. Watson,^^^ the Comptroller had 
without opinion approved a branch on the basis of the usual thick 
hearing record plus brief and conflicting recommendations from 
subordinates; the court went back to implying state law findings 
and noting that the record contained evidence that might, on 
some theory, support them. Pitts was cited to the effect that the 
Comptroller's decision must be upheld unless the record indicates 
that it is "arbitrary, capricious, an abuse of discretion or otherwise 
not in accordance with law . . . ."'^^ 

The plaintiff in Bank of Commerce of Laredo v. City National Bank 
of Laredo^^^ requested remand to the district court to obtain from 
the Comptroller some explanation of his charter approval as a 
branch substitute for the defendant, but was turned down flatly 
by the Fifth Circuit in a remarkably obtuse opinion. The court 
cited Morgan IV and the ^^VG-Overton Park banking cases for the 
proposition that the plaintiff was barred by the "preponderant 
weight of judicial precedent" from deposing the Comptroller or 
requiring him to answer interrogatories. ^^^ Overton Park itself was 
ignored, and Pitts was cited as a recent affirmance of this policy, 
though the opinion had said the exact opposite. ^^° The real point 



153. [l]n the case at Bar tlie Coni|itiollei' atten)|5ied to explain in three short sentences 
his analysis of 1000 pages ot economic data contained in the adniinistratixe record. . . . 
1 he Comptroller ex|)lained liis determinati\e reasons for the action taken b\ stating 
siniimariU that the new bank would seive the convenience and needs of the relevant 
mat ket and have no serious effect on the existing institutions now serving the general 
area. Under present requirements of procedural due process governing the Comptrol- 
ler's decisions . . . the Court is constrained to deem tlie Com])irollcr's explanation suf- 
ficient. 
Wood Coiintv Bank v. Camp. Civil No. 1277-72 (D.D.C., Mav 24, 197;-i), «//V/, 498 F.2d 
1063 (D.C. Cm. 1974). See W .\sh. Fin. Rep., at T-2 (June 4. 1973). 

1,t4. 363 F. Supp. 466 (I). D.C. 1973). 

1.53. Id. .11 468. 

136. 361 F. Supp. 728 (X.D. Miss. 1973), r,// ''/, 488 F.2cl 1036 (3tli Cir. 1974). 

137. Irl. at 735. 

138. 484 F.2d 284 (3ih Cir. 1973), r^'//. denied, 416 U.S. 905 (1974). 

139. /'/. at 287. 

160. "11, .is the Court of .\ppe.ils held .\\m\ .is the Comptroller does not now contest, 
there w.is such l.iilure to expl.im .idmimsii .iiive .ictioii .is to liustiate ettective judicial re- 



LICENSING DECISIONS OF BANKING AGENCIES 115 

in Laredo was that the Fifth Circuit did not in that case feel any 
need for additional explanation to undertake judicial review, ^^* 
and that in turn rested upon a willingness to hold the Comptroller 
to a generous and undemanding standard — the court was willing 
to glean from the staff recommendations and a "voluminous rec- 
ord" what "surely" was the determinative reason for the ap- 
proval. '^^ 

In Merchants ^ Planters Bank v. Smith^^^ the district court ap- 
plied the limited scope of review oi Pitts to a branch approval, sug- 
gesting it was sufficient if the Comptroller's determination had "a 
rational basis in fact."'^'' Untroubled by the lack of any findings, 
conclusions, or opinion, the court pieced together conflicting file 
memoranda and constructed what it felt "the agency thinking" must 
have been. Needless to say, the Comptroller was sustained. 

The only contrary note was First National Bank of Fayetteville v. 
Smith,^^^ reversing the Comptroller's approval of a charter in a 
manner reminiscent of Haw River. ^^^ The recommendations of 
subordinates having gone four to one against approval, the court 
concluded that the Comptroller must have accepted and relied 
upon the grounds given in the one favorable recommendation, and 
that advice became in effect the Comptroller's findings to be tested 
against the record. ^^^ After noting that the standard for review was 
whether the Comptroller's action was arbitrary or capricious, or 
had no rational basis in the record, the court then waded through 
the record — considering how much capital would be adequate, 
choosing one expert over another on the bank's earnings prospects, 
judging whether the "need" would be better met by branches, 
and weighing the qualifications of the applicant group and pro- 
posed managing officer. Subsequently, however, the Eighth Cir- 
cuit reversed this decision on the ground that the district judge, 
though stating the correct standard of review, had actually exer- 
cised an independent judgment in place of that of the Comptrol- 



view, ihe remctlv was not to hold a dc novo hearing bm, as contemplated by Overton Park, 
to obtain trom the agency, either thrf)iigh af("ida\its or testimony, such adchtional explana- 
tion of the reasons lor the agenc\ decision as may prove necessary" Camp v. Pitts, 41 1 U.S. 
138, 142-43 (1973). 

161. 484 F.2d at 288. 

162. hi. 

163. 380 F. Supp. 3.i4 (K.D. .\rk. 1974). 

164. Ifl. at 3.-)6. 

165. 365 F. .Supp. 898 (W.l). Ark. 1973). 

166. See text and notes at notes 71-74 siipia. 

167. 365 F. Siipp. at 904. 



116 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

I^j-.i68 jj-jp failure ot the Comptroller to provide even a hint as to 
how his own judgment had been arrived at occasioned no adverse 
comment at all. 

So judicial review of the Comptroller's decisions that is both 
limited and intelligent seems to be a goal that is as far away as 
ever. Even without trial de novo, there still seems to be only the 
unattractive choice between pro forma endorsement and taking 
over the policy judgments that were supposed to be the duty of 
the Comptroller. An intermediate role for the comts is simply not 
feasible unless the Comptroller can and will provide a clear and 
consistent explanation of what he is doing, and that has not been 
forthcoming. 

H. The FHLBB Revisited 

Meanwhile, during what for the Comptroller was a most tur- 
bulent decade, the Federal Home Loan Bank Board has sailed 
along with remarkably little disturbance. It is true that the Bank 
Board had no state law limitations on branches'^^ to raise issues of 
interpretation and lead to litigation, and also that the Board was 
from the outset willing to hold hearings and build up a record for 
court inspection. The Board's position was therefore much less 
vulnerable than the Comptroller's; there were fewer obvious 
points of attack. And certainly early decisions like Roiue^''^ and 
Bridgeport Federal^''^ would be discoinaging to any would-be liti- 
gant. ^^^ 

But as the Comptroller's judicial battles created new doctrines, 
some of them had a clear potential for application to the Board 
as well. And in 1970 the Board amended its rules for charter and 
branch applications,'^^ reducing the trial-type hearing that it had 



Ui8. l-iisi Nail li.mk ol I'.n ciic\ illc \. Smiih. 308 V :h\ \M\ (Sili C'.n . \91\). j>rlilio>i 
foi inl. filnl. 13 L .S.I..W. ;V»:U) (f.S. Fel). 4. 11)7.3) (No. 9(i.1). 

I(i9. Kxcc'iii to the- c-\lciii ilic Bo.ird lias imposed ilu-m on Uscll b\ rogul.nioii. .Sec I. nous 
Sav. & Loan Assn. \. IHI.BB, ;^77 I- . Supp. II (\.D. 111. 1974); 12 Cl.l-.R. S .■K-)(i.r)(l))( 1) 
(1974). 

170. KUl.BB \. Rowc, '-'84 l-.'Jd 274 (D.C. Cn. 19(i0). Str lc\i and noics at notes r>(\-:->7 
\iif)i(i . 

171. Biidgcpon Fed. Sav. & Loan .\ssii. \. IIILBB. ;U)7 K.2d 380 ('M\ Cii. 19(52). .SVc 
lexl .ind notes at notes 39-()0 snfiin. 

172. These decisions weie leiiilorced 1)\ some ol tiie observations about the Bo.ifd's 
"exclusixe diseietion" in Centi.il Sa\. i<; Loan .\ss'n ol Chariton \. KHI.BB, 29!^ l". Snpp. ()17, 
()2;V24 (S.l). Iowa 19()8).«//V/, 422 L.2d 30 L 307 (8th Cii. 1970). whieh upheld the Boaid's 
■luthoi'itv to peiinii ledeial savings .uid loans to opeiate "mobile taeilities," a soil ol travel- 
ing branch. 

I7:V .SVc .13 Fed. Reg. 2.309. 2310-12 (1970). 



LICENSING DECISIONS OF BANKING AGENCIES 117 

been holding tor many years to a procedure involving the submis- 
sion of written protests and an opportunity for brief oral argu- 
ment thereon. '^^ 

New attacks by competing associations were, nevertheless, as 
unsuccessful as before. In Guaranty Savings ^ Loan Association v. 
FHLBB^^^ the court upheld this trimcated "oral argument" pro- 
cedure, and seemed to suggest that the Board's discretion over 
branching was so wide as to constrict judicial review almost to the 
point of nonexistence. And in Benton Savings & Loan Association v. 
FHLBB^'^ the Board's resolution of branch approval in conclusory 
boilerplate was likewise sustained, the court noting that Pitts had 
been construed "to relieve the Comptroller and, by analogy, the 
Home l.oan Bank Board of any obligation to state with specificity 
the reasons for their decision. "'^^ 

In 1974 the Board carried this trimcation process yet another 
step, amending the branch regulation to make oral argument avail- 
able to a competitor only if it had filed a "substantial" protest.'^** 
In theory, this ever-widening divergence from the model of de- 
cisions based upon evidentiary hearings is going to increase the risk 
that a court will hold the agency's factfinding procedures inade- 
quate; the Supreme Court in Overton Park listed that conclusion as 
one of the two grounds that would justify de novo review. '^^ Yet so 
far the courts have not developed the same disenchantment with 
the Board's decision making that the Comptroller has managed 
to evoke, and the evident possibility seems but a distant cloud.'**" 

II. Secondary Approvals 

Next we turn, more briefly, to the role of federal banking agen- 
cies with respect to state-chartered institutions. A state agency 
is the primary supervisor for such institutions, making decisions 



17 1, 12 c.i-.R. «ji} :)i:V'_'(r). (1 1 .111(1 ,")i:).i Mi;). [U] ( i'itd. 

17.'). WM) I-. Siipi). I7(» m.n.C. I'.I7I|. 

17(1. :<(■).-) \ . su|)|). I lo.i (I-. I). .\ik. 1'.)7:m. 

177. lil.M IIOI. 1 111- lio.n (I li.iN. liDwi'v CI , w 1 illcii (i|)ini(iiis 111 Icllci loiiiiMiuf I'.KiMm 
sonic (.iM-s wlicMc lilij^alion u,is .nilu ip.ilcd, .iiid li.is s.iid lli.il lis picsciil |)i)li(\ is lo issiii^ 
cxpl.in.iioiA opinions ulicncvci ic(]ucsit(i. 

17H, :V.) Ii'd. Kci;. 7H',» (l')7l). I Ins is in line \mi1i iIic B.iiik Ud.iid's (uiiciil 'm'lici.il 
p()li( \ . . . lo ciu oiii ,im- cxp.iMsion I III oiil;1i In .iik Iiiiil;;" mv !'_' ( M k. S .'),')l )..")( I ))(,">) ( nt7 I). 
wIikIi .iIso (onl.nns ilic w oiidci I nll\ iliisni' u.nnnii; lli.ii pioUsis "will li.ivc lo be nu ri'.is- 
iiml\ jxi sii.isiM- lo li,i\r .ni\ illiil 

I7'.l. Cili/cns lo I'u-sciM- Ovciion I'.iik \. \olp<-. Mil IS, Ml'.', II.")(I'17I). 

IMO. 1 he inosi ictcnl li,Mi<{Uil ,i( ( ( pl.iiK ts ol ilic Bo. mis Mi. null piou'duics .iii- to Mr 
loiiiid III l.\ons S,i\ X l.o.ni Assn \ llll.KK, :(77 I Snpp II (\.l) III l'.)7 1).in.l lliii 
(how S,i\. K- l.o.m Ass II \. I lll.BH. (ivil \o 7'_'-(;-:l().") (l.l). Wis., \I,m . V I<,I7,'>) 



118 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

on charter and branch approvals and otherwise regulating their 
investments and activities. But access to federal deposit insurance 
is controlled by federal agencies and is for practical purposes as 
necessary to commencement of operations as a charter. ^^^ In ad- 
mitting state institutions to membership and thereby to deposit 
insurance, therefore, the Federal Reserve Board (FRB), Federal 
Deposit Insurance Corporation, and Federal Savings and Loan 
Insurance Corporation perform a sort of secondary charter ap- 
proval function. Likewise, when a bank gets approval for a branch 
from its state supervisor, it also has to obtain approval from the 
FRB or, if not a member of the Federal Reserve System, from the 
FDIC. There is, however, no counterpart requirement for insured 
savings and loans to get branch approval from the FSLIC. 

In performing these secondary approval functions, particularly 
for branches, one would expect the federal agencies to play a nar- 
rower and more limited role than the primary supervisor making 
the initial determination; but the process is not wholly an auto- 
matic endorsement of what the state has approved. Although the 
court cases are few, the general picture is not dissimilar to the one 
we have traced for primary approvals: a dearth of standards, a 
lack of hearings, and the absence of opinions. 

A. Federal Reserve Board 

A state bank desiring membership in the Federal Reserve Sys- 
tem makes application to the system's Board of Governors "under 
such rules and regulations as it may prescribe' V^^ by way of stan- 
dards the statute merely states that the Board "shall consider the 
financial condition of the applying bank, the general character 
of its management, and whether or not the corporate powers ex- 
ercised are consistent with the purposes" of the Federal Reserve 
Act.^^^ The "financial condition" factor is amplified somewhat by 
the requirement that a bank may not be admitted to membership 
"unless it possesses capital stock and surplus which, in the judg- 
ment of the Board . . . are adequate in relation to the character 
and condition of its assets and to its existing and prospective de- 
posit liabilities and other corporate responsibilities."'^"* In addition, 
for a newly organized state bank that is not already insured, the 



181. See Tables 1 & 2, p. 237 sufxa. 

182. 12 U.S.C. § 321 (1970) 

183. Id. § 322. 

184. Id. § 329. 



LICENSING DECISIONS OF BANKING AGENCIES 119 

Board must certify to the FDIC that it has "considered" the list of 
six factors contained in section 6 of the Federal Deposit Insurance 
Act.^^^ The rules and regulations prescribed by the Board for 
membership applications are to be found in Regulation H,'**^ which 
consists primarily of an assemblage of the pertinent statutory pro- 
visions and is thus not informative about additional bases of de- 
cision. 

For the establishment of branches by a state member bank, the 
approval of the FRB must be obtained.*^'' The statute says nothing 
whatever about approval standards, and the regulation merely 
notes that the request for approval "should be accompanied by 
advice as to the scope of the functions and the character of the busi- 
ness which . . . will be performed by the branch and detailed in- 
formation regarding the policy . . . proposed to be followed with 
reference to supervision of the branch by the head office. . . ."'^^ 

There are no reported cases challenging either approvals or 
denials of membership or branch applications. In Apfel v. Mellon,^^^ 
the petitioner sought mandamus to force the FRB to approve an 
application to form an Edge Act corporation,*^" another vehicle 
for engaging in foreign banking; the argument was over whether 
the statutory reference to approval by the FRB imported the ex- 
ercise of judgment and discretion, and the court held that it did. 
And in Old Kent Bank is' Trust Co. v. Martin^^^ there is one judge's 
comment that, as to branches, "[s]ince 12 U.S.C.A. § 321 incor- 
porates the policy of Section 36, the Board's discretion over state 
member banks must be construed as broadly as that of the Comp- 
troller of the Currency. "'^^ 



1H5. Id. § 1814. Sff text and note .ii note 2b\uj)t(i. 

1H6. 12 C.F.R. 8 208 (1974). ,SVr also 12 C.F.R. § 265.2(0(26) (1974). 

187. 12 L'.S.(;. 8 321 (1970). This has been constiiied lo ai)|)ly only to de no\o estab- 
lishment and not to acquisition ot branches by merger. Old Kent Bank & Trust Co. v. 
Martin, 281 F.2d 61 (D.C;. Cir. 1960). The distinction is now moot since the Board's ap- 
proval must be obtained anyway lor a merger in wiiich a state member bank is the sm- 
viving party, 12 U.S.C. § 1828(c)(2)(B) (1970). 

188. 12 C.F.R. § 208(c) (1973). Ihe FRB has delegated its authority to a|)prove domes- 
tic branches to the regional Federal Reserve Banks and lo the Director of the Division ot 
Supervision and Regulation, in a manner that contains additional standards. 12 Cl.F.R. 
§ 265.2(0(1), (c)(10) (1974). For loieign branches, the Board exercises approval authoritv 
over national banks as well. 12 T.S.C. § 601 (1970); 12 C.F.R. § 213.3(a) (1974). II a branch 
is denied, the Board will provide a "sim|)le statement" ol the grounds. 12 C.F.R. § 262.3(e) 
(1974). 

189. 33 F.2d 805 (D.C. Cii. 1929). 

190. See 12 L'.S.C. §§ 61 1 et seq. (1970). 

191. 281 F.2d 61 (D.C. Cir. 1960). 

192. Id. at 68 (dissenting opirnon). 



120 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

B. FDIC 

When a state bank that is not a member of the Federal Reserve 
System applies tor deposit insurance, the FDIC is supposed to "con- 
sider" the six factors which we have already noted'^'^ and also to 
"determine, upon the basis of a thorough examination of such 
bank, that its assets in excess of its capital requirements are ade- 
quate to enable it to meet all of its liabilities to depositors and 
other creditors as shown by the books of the bank,"'^^ a require- 
ment designed for operating banks rather than newly formed ones. 
The same six factors are to be considered by the FDIC in deciding 
whether to approve new branches for insined state banks that 
are not FRS members.'^'' The regulations add nothing except 
some information about application forms and where to file 
them.'»« 

There are no reported cases involving judicial review of FDIC 
decisions on membership and branch applications.'^^ 

C. FSLIC 

The provisions governing applications for insurance of accounts 
by state chartered savings and loans'^" are to be found in section 
1726(c) of title 12 of the United States Code: 

The Corporation shall reject the application of any appli- 
cant if it finds that the capital of the applicant is impaired or 
that its financial policies or management are unsafe; and the 
Corporation may reject the application of any applicant if it 
finds that the character of the management of the applicant or 
its home financing policy is inconsistent with economical home 
financing or with the purposes of this subchapter. ... In con- 
sidering applications for such insurance the Corporation shall 
give full consideration to all factors in connection with the fi- 

19:*. 12 I .S.C. S IHK) (1970). Sn- ic\i ,ii iioic 2y> uipia. 

191. 12 L'.S.C. § 1815 (1970). 

193. W. S 1H2H(<1). 

I9(i. Sn' 12 C.l-.R. §() Mr.>>.\. My.\:2. :<();V10, :U)1.:< (197;^. .XutliorilN lo approve I)i.iih1r-s, 
il (c'lt.iin loiicliiions arc mcl, lias l)c'c'ii dfk'galcd lo ilu- niroclor ol ilio Division oi Bank 
SiipiMviMon. 12 C.K.R. §S :<():<. 1 i(a)(7), :<0:<. 12(c) (197 1). 

197. liic ncarcM approach is M.ii>cllsc-n \. I DlC, :Vn V. Siipp. lO.'U (I). Mom. 1972), a 
Ion action loi mioik'\ daniaifcs against itu- I'DK". vviiith was disinissod lor lailiiie to iollow 
tlic pKHcdmcs ic-(|iiiiod 1)V the FcdcMal I oit Claims .\it: it lontams soini- gcni'ial ii-loicncfs 
to the- l-'l)l("s disdc'tioii in passing on iiismaiuo .i|)|)licalions. 

19S. It is till- ■"diiiN" ol the- ISI.K; to insnic tlu' acronnls ol Icdcial savings and loans. 
I Ik- ISl.lC. is I nil \n ilic iliioc-man Icdcial Home Loan Bank Board, whitli charters led- 
eial savings and loans; lor tedcial assoi i.itions, thereloie, the insm.ince decision is essen- 
(iallv pail ol the cliariering decision. 



LICENSING DECISIONS OF BANKING AGENCIES 121 

nancial condition of applicants and insured institutions, and 
shall have power to make such adjustments in their financial 
statements as the Corporation finds to be necessary. '^^ 

In these applications, since a newly organized savings and loan 
will not have impaired capital and normally will assert that its fi- 
nancial and home financing "policies" will be whatever is necessary 
for approval, the pivotal statutory criteria become "the character 
of the management" and "all factors" in connection with financial 
condition. The regulations do not expand upon these rudi- 
mentary criteria, but do contain a description of internal process- 
ing2"o and a procedure for public notice of applications and op- 
portunity for oral argument.^"* As we have previously noted, the 
FSLIC does not have any approval authority over the establish- 
ment of branches by state-chartered members. 

There are no reported cases challenging FSLIC decisions to 
grant or deny insured status to an applying institution. 

III. The Administrative Decision Process 

Court cases and judicial opinions do not provide a compre- 
hensive picture of agency decision making, since they are con- 
cerned with but a small and probably atypical fraction of all appli- 
cations. We turn, therefore, to an overall statistical summary of 
the licensing decisions of the federal banking agencies, and then 
to a more detailed examination based upon a sample of actual de- 
cision files. 

A. The Statistical Picture 

The following tables show the licensing decisions of the four 
agencies over the five year period from 1969 to 1973, inclusive. 
These statistics must be interpreted with caution, however, for the 
policies followed by an agency, to the extent they are known and 
predictable, shape the applications it receives. A low percentage 
of denials, for example, would not necessarily mean an agency 
was following a course of automatic approval; it might mean only 
that applicants had a clear understanding of when to expect dis- 
approval, and in those situations did not waste time applying. 
Nonetheless, there are some striking patterns revealed by the 
figures, and they correspond to the distinction between primary 
and secondary supervision already noted. 

199. 12 U.S.C. 8 172()(t) (1970). 

200. 12 C.K.R. § 571.6 (1974). 

201. hi. §§ 562.4. 562.5. 



122 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 



Tabic 3 

Clompirollfi ol the CAineiux Decisions 

1969-197:< 





1973 


1972 


1971 


1970 


1969 


Total No. 
(Percent) 


1. Chartei 
api^lications 


224 


172 


128 


110 


77 


711 (100) 


a. Approved 


149 


99 


65 


52 


46 


411 (58) 


1) New 


134 


84 


55 


42 


33 


351 (49) 


2) Coinersion 


15 


15 


10 


10 


13 


63(9) 


b. Denied 


70 


63 


57 


48 


25 


263(37) 


1) New 


69 


60 


54 


46 


24 


253 (35) 


2) Conversion 


1 


3 


3 


2 


1 


10(2) 


c. Witlidrawn or 
abandoned 


5 


10 


6 


10 


6 


37(5) 


1) New 


4 


10 


5 


9 


2 


30 (4) 


2) Conversion 


1 





1 


1 


4 


7(1) 


2. Biancii 

a])|)lications* 


1257 


1070 


917 


987 


1125 


5356(100) 


a. Ap])ioved 


1092 


925 


786 


782 


831 


4416(82) 


b. Denied 


119 


116 


104 


152 


200 


691 (13) 


c. Withdrawn or 
abandoned 


46 


29 


27 


53 


94 


249(5) 



* Excluding mergers. 

Source: Comp. Cirr. .\nn. Reps. 1968-1973, Tables 4, 6, 8. 



The Comptroller, with respect to applications for national bank 
charters and domestic branches, and the FHLBB, with respect to 
applications for federal savings and loan association charters and 
branches, act as primary supervisors, making the initial (and in- 
deed the only) decision as to approval or rejection. Tables 3 and 
4 present the data on their decisions. The rejection rates are high 
enough to be quite meaningful; over this most recent five year 
period, the Comptroller denied 13 percent of all branch appli- 
cations and the Bank Board denied 18 percent. Putting aside 
conversions of existing state institutions to federally chartered in- 
stitutions, the Comptroller denied 40 percent (253 out of 634) of 
the applications for new national banks and the FHLBB denied 
61 percent (79 out of 129) of the applications for new federal 
savings and loans. 

By way of contrast, the FRB, FDIC and FSLIC are in the posi- 
tion of secondary supervisors when they deal with institutions al- 
ready chartered and regulated by state authorities. In performing 
their statutory approval function over branches for state banks, 
therefore, the FRB and FDIC are passing on issues previously 
dealt with by state banking departments. Although the question 



LICENSING DECISIONS OF BANKING AGENCIES 



123 



1 able 4 

FHLBB Decisions 

1969-1973 





1973 


1972 


1971 


1970 


1969 


Total No. 
(Percent) 


1. Charter 
applications 


46 


31 


37 


31 


56 


201 (100) 


a. Approved 


24 


23 


26 


23 


24 


1 20 (60) 


1) New 


15 


17 


14 


1 


3 


50(25) 


2) Conversion 


9 


6 


12 


22 


21 


70 (35) 


b. Denied 


22 


8 


10 


8 


32 


80 (40) 


1) New 


22 


8 


9 


8 


32 


79(39) 


2) Conversion 








1 








1 * 


t. Withdrawn 








1 








1 * 


1) New 




















2) Conversion 








1 








1 * 


2. Branch 

applications** 


1143 
(465) 


654 


487 


249 


255 


2788(100) 


a. Approved 


1002 
(391) 


534 


377 


208 


154 


2275 (82) 


b. Denied 


140 

(74) 


119 


102 


41 


101 


503 ( 1 8) 


c. Withdrawn 


1 
(0) 


1 


8 


1 
1 


10 * 



* Less than Vi^c 
** Excluding mergers. 
Source; FMLBB data. 



(For 1973, limited service facilities are in parentheses.) 



of admission of a new applicant to system membership and deposit 
insurance is more of an initial decision, the factors that the FRB, 
FDIC and FSLIC consider under the relevant statutes are quite 
similar to those that state authorities were supposed to consider in 
their chartering decision, which precedes the membership applica- 
tion. The outcome is reflected in Tables 5, 6, and 7. The approval 
rate on branch applications was 99 percent for the FDIC and al- 
most 100 percent for the FRB. On membership applications, the 
approval rate was 98 percent for both the FRB and the FDIC; 
only the FSLIC had a significant rejection rate of 30 percent. 
With this latter exception, it is apparent that the main area in 
which discretion is exercised, at least in a manner that applicants 
do not fully comprehend and anticipate, is in the decisions of 
those agencies that act as primary supervisors: the Comptroller 
of the Currency and the Federal Home Loan Bank Board. 

B. A Closer Look — The Comptroller 

In order to understand better the agency decision-making pro- 
cess, a study was made of a number of Comptroller's office de- 



124 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 



Table 5 

FRB Decisions 

1969-1973 





1973 


1972 


1971 


1970 


1969 


Total No. 
(Percent) 


1. Membership 
api^lications 


30 


19 


14 


8 


10 


81 (100) 


a. Approved 


29 


19 


13 


8 


10 


79 (98) 


1) Operating 


3 


6 


4 





3 


16(20) 


2) New 


26 


13 


9 


8 


7 


63 (78) 


b. Denied 




















1) 0|)erating 




















2) New 




















c. Withdrawn 


1 





1 








2(2) 


I) Operating 




















2) New 


1 





1 








2(2) 


2. Domestic branch 
ajjplications* 


250 


262 


212 


211 


194 


1129 


a. Aj^jirosed 


250 


262 


212 


210 


193 


1127 


b. Denied 











1 


1 


2 


c. Withdrawn 





















* Excluding mergers. The FRB also during this period approved 416 applications for 
foreign branches of national and state member banks; one was denied and one with- 
drawn. 

Soiiice: FRB data. 



1 able 6 

FDIC. Decisions 

1969-1973 





1973 


1972 


1971 


19 


70 


1969 


Total No. 
(Percent) 


1. Insurance 
applications 


266 


188 


167 


149 


161 


931(100) 


a. .Ajjproved 


261 


185 


163 


147 


157 


913 (98) 


1) Opeiating 


6 


6 


4 


8 


17 


41 (4) 


2) Proposed 


255 


179 


159 


139 


140 


872 (94) 


b. Denied 


5 


3 


4 


2 


4 


18(2) 


1) 0])erating 




















2) Propsed 


5 


3 


4 


2 


4 


18(2) 


c. Withdrawn 




















2. Branch 

applications* 


968 


862 


787 


530 


563 


3710(100) 


a. Approved 


961 

(165) 


848 
(132) 


773 


527 


556 


3665 (99) 


b. Denied 


7 


14 


14 


3 


7 


45(1) 


c. Withdrawn 





















* Excluding mergers. (For 1972-73. limited service facilities are in parentheses.) 
Soince: FDK; data. 



LICENSING DECISIONS OF BANKING AGENCIES 



125 



Tabic 7 

FSI.K; Decisions 

19W)-1973 





197:5 


1972 


1971 


1970 


1 969 


total No. 
(Percent) 


Insurance 
applications 


49 


20 


19 


19 


18 


125(100) 


a. Approved 


.S9 


12 


11 


11 


11 


84 (67) 


b. Denied 


9 


8 


7 


8 


5 


37 CM)) 


c. Wit lid I awn 


1 





1 





2 


4 (3) 



Source: FSI.IC: data. No breakdown between o|)erating associations and proposed 
new associations was a\,nial)le. 

cision files. That agency was chosen since it has figured in most of 
the significant judicial review litigation of the last decade and is the 
most important of the primary approval agencies in terms of the 
size of the industry segment it regulates. ^'^'^ A random sample was 
taken from charter decisions, branch approvals and branch denials 
over the 1969-1973 period; with the usual vicissitudes of files that 
were checked out or missing, the study group consisted of twenty- 
seven charter files (fifteen approved and twelve rejected), twenty- 
nine branch approvals, and thirty branch denials. These are fair- 
ly small samples, and the analysis based on them is intended to be 
suggestive, not conclusive. Nevertheless, it seemed desirable to 
look at the decision process from the inside, since no similar study 
had ever been undertaken. 

1. Charter Decisions. The process formally begins when an "Ap- 
plication to Organize a National Bank"^"'' is filed with the Region- 
al Comptroller. This is a short form containing little more than 
the proposed name, locations, and initial capital of the new bank, 
together with rather long and detailed biographical and financial 
statements by each of the organizers. ^"^ The applicant is separately 
required to submit additional information, primarily on the issue 
of profitability: the location chosen, the population and economic 
character of the area the bank will serve, competing financial in- 
stitutions in that area, and projections of deposit and loan growth 
and of income and expenses. ^""^ This information is frequently 



202. S»'f- lables 1 it 2 siil»fi. 
20:V lorni CC 7022- l(i. 

204. loini CC ()021-0r) a\m\ 7021-0). I lie Conipiiollci < iisioinai ii\ also ii(|uiies iliese 
iornis Iroiii eai ii director, oIIkci .iiul Mibsi.inl i.il sioc klmldci (holdini; li\<- pcmni oi moic 
ol the stock) ol the new bank. 

205. Ser Form CC 7022-18, set loiili ui the .\pi)cri(li\. pp. 297-98 /»//u(. 



126 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

provided in the form of a "market survey" prepared by a consult- 
ing firm. 

The application is then assigned to a national bank examiner for 
a field investigation. His comments and findings are rendered^"^ in 
two parts, the "Examiner's Report of an Investigation," which is 
available to the public, and the "Confidential Memorandum" to 
the Comptroller, which is not. The Examiner's Report sum- 
marizes some of the application information and gives a brief 
economic description of the service area and community, but con- 
tains little in the way of evaluation. That is provided in the Con- 
fidential Memorandum, on a number of topics. The examiner 
gives his views on how much initial capital the bank should have; 
he checks on the biographical and financial data furnished by the 
principal figures in the proposed bank and offers his conclusions 
about whether they are acceptable persons; and he answers ques- 
tions such as these: 

4. Is there a public need for the proposed bank or is 
the area reasonably well served by existing banks and 
branches? . . . 

5. Is it reasonable to expect that the available banking busi- 
ness will be adequate to support the proposed bank, if estab- 
lished, together with existing competitive banks and branches, 
or will an overbanked situation be created? Indicate whether a 
healthy or unhealthy degree of competition will accrue. 

He concludes by recommending either approval or denial of the 
application. Neither the form nor any standard instructions pro- 
vide criteria by which these judgments and conclusions are to be 
reached; consequently, they rest largely on the personal attitudes 
of the examiner to whom the application was assigned. 

The applicant has to publish notice of the filing of the charter 
application, and it is permissible, though uncommon, for objectors 
to request a hearing. ^''^ Otherwise, the application simply pro- 
ceeds along a recommendation chain. The Regional Comptroller 
adds his comments and recommendation to those of the local ex- 
aminer, and then the application goes to Washington, where 
three more recommendations are added — in turn, those of the 
Director of the Bank Organization Division, an Economist, and a 
Deputy Comptroller. These latter three recommendations are 



206. See Form CC-1956-OX. 

207. 12 C.F.R. §§ 5.2, 5.4 (1974). 



LICENSING DECISIONS OF BANKING AGENCIES 



127 



usually explained in a few sentences; the basis given for the other 
two recommendations is summarized in a paragraph or two. When 
the form arrives at the Comptroller's desk for final decision, he has 
five recommendations set forth on two pages. The Comptroller 
signifies his decision by signing on the approval or rejection line, 
without any statement of reasons. 

Although this decision procedure defies close analysis, as a num- 
ber of courts have found out, it is possible to make some simple 
breakdowns, based on the sample of twenty-seven charter files. 
Table 8 shows the frequency with which the Comptroller agreed 



Table 8 

Staff Recommendations and Comptroller's Charter Decisions 

(1969-1973 Sample) 



Comptroller's 
Decision 



Approsed (15) 



Percentage of 
Disagreement 



Rejected (12) 



Recommendations of 

1. Examiner 

2. Regional Comptroller 

3. Director, B.O.D. 

4. Economist 

5. Deputy Comptroller 



Approval 



Rejection 



Approxal 



Rejection 



447f 

30 

33 

27 

11 



Source: Comptroller's charter files. 



with the recommendations of his various subordinates. The 
Comptroller disagreed with his field examiner's view in almost 
half the cases, and with his more senior staff in about a quarter 
of the cases, on the average. The disagreements were mostly over 
implicit standards and values, for the examiner was the only one 
to undertake a significant factual investigation and there were 
few disputes along the recommendation chain over what could be 
called a matter of historical fact. 

Table 9 provides a picture of the extent to which these disagree- 
ments were clustered. It indicates the number of staff recom- 
mendations contrary to the Comptroller's decision in each case. 
In forty-one percent of the cases, the Comptroller and his staff 
were in complete agreement, but twenty-six percent of the time 
the Comptroller's decision was the opposite of the recommenda- 
tion of a majority of his staff. 

It is more difficult to get at the basis of these disagreements, 
since the Comptroller makes no statement of his reasons and the 
statements of the last three staff members in the recommendation 
chain are usually very brief and conclusory. In each case, however, 



128 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

lahlf 9 

(■.()m|)irollci's {'.liaitcr DccImoms and CoiuraiA Rc'comnundalioiis 

(l'.)()9-1973 Sample) 



No. olComnnA StatI 


Comptroller 
Appi()\als 


Comptroller 
Rejections 


Coml)ined 


Recommendations 


No. 


(Percentage) 





7 


4 


II 


41 


1 


:? 


2 


5 


19 


2 


1 


3 


4-- 


15 


3 





3 


3 


11 


4 


3 





'^ 


11 


5 

roiAi. 


1 
15 



12 


1 

27 


4 

100 



SoiMce: Comptrollers chaiiei files. 



a list was made of the factors cited by each staff member in support 
of his conclusion, and the factors were grouped into four broad 
categories: (1) factors related to predicting the bank's profitability, 
such as past or projected future economic growth of the commu- 
nity, the business available to a new bank, the accessibility of its 
location, and projections of loan and deposit growth and of in- 
come and expense; (2) characteristics of the application and appli- 
cant group, such as the reputation, financial strength and experi- 
ence of the organizers, the distribution of stock ownership and its 
"local" character, and the adequacy of the proposed initial capitali- 
zation; (3) competitive aspects, such as the need for additional 
competition in the locale, the prospect for injury to other banks, 
and the operation of state laws limiting entry to certain markets; 
and (4) factors seen as bearing on the convenience and needs of 
the community, such as the absence or paucity of existing banking 
offices in the locale, or the existence of adequate service at the 
present time. 

Attention was then focused on the thirteen cases in which the 
Deputy Comptroller agreed with the Comptroller and disagreed 
with one or more of his colleagues. In these cases disputes cen- 
tered overwhelmingly on the matter of the "need" for a new bank. 
In twelve of the thirteen cases, the opponents of charter issuance 
viewed the locale as already adequately served and saw no indica- 
tions of public need for a new bank. Those supporting charter is- 
suance, on the other hand, most often cited rapid past or future 
growth of the area (nine cases), adequate capitalization of the 
proposed bank (eight cases), need for a new bank or added com- 
petition (eight cases), and the absence of any particular injury to 
existing banks (eight cases). The use and implications of these fac- 
tors will be further discussed below. 



LICENSING DECISIONS OF BANKING AGENCIES 129 

2. Branch decisions. The procedure on branch applications is 
generally similar to that for charters. The application form^^s is 
a single page, but here too there is a requirement to submit addi- 
tional information on competing institutions in the area to be 
served and the population and economic character of the locale. ^"^ 
A national bank examiner then makes his field investigation, which 
is again written up^*" in two parts — a publicly available Report and 
a Confidential Memorandum. The Report covers the same ground 
as the application, summarizing it and adding to it in a few re- 
spects. The Confidential Memorandum contains the examiner's 
comments on whether the bank has any problems "which may be 
considered as factors against branch expansion" and on whether 
any protests from other banks have "merit"; he lists what he be- 
lieves to be the favorable and Unfavorable factors and gives his 
opinion and recommendation. The Regional Administrator then 
adds his comments and recommendation. 

At the Washington office, the recommendation chain differs 
slightly from the charter process. First comes the Director of the 
Bank Organization Division, as before. Then views are added 
either by one of the several Deputy Comptrollers with supervisory 
responsibility for different regions, or by the Chief National Bank 
Examiner. Next comes another Deputy Comptroller, and then the 
application goes to the Comptroller for his final decision. The 
recommendations of the Comptroller's subordinates are contained 
on two pages of the form, and the Comptroller's own decision is 
not accompanied by any indication of its basis. 

Table 10 shows the frequency with which the Comptroller's 
branch decisions were in agreement with various subordinates' 
recommendations. As compared with Table 8 on charter decisions, 
the greater degree of agreement is striking. 1 he same tendency is 
evident in Table 11; in no case was a majority of the staff recom- 
mendations contrary to the Comptroller's branch decision, and in 
seventy-eight percent of the cases there was unanimity. 

The reasons for this greater consistency are not apparent. 
Where conflict did occur, it usually (fourteen out of eighteen 
times) took the form of a staff recommendation of approval for a 
branch application that the Comptroller denied; indeed, there 
was unanimity on only two-thirds of the denials, as compared to 



208. Korm CC 7021-01. 

209. Form (;C 7024-0(i, whicli in many respects is uientical lo the charier lorru in the 
Appendix. 

210. Sfe Form (;C-19:iO-OX. 



130 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

laNe 10 

Si, ill Rfcominciulations and C'.oiiiptroiler's Braiuli Decisions 

(1969-1973 Sample) 



Comptroller's 






Percentage of 




Decision 


.\ppro\e( 


1 (29) 


Disagreement 


Denied (30) 












Recommendations of* 


Appi o\al 


Denial 


157f 


Approval 


Denial 


1. Kxaminei 


25 


2 


6 


22 


2. Regional Adnnnisti <itor 


2H 


1 


5 


2 


28 


•^. Director, B.O.D. 


28 


1 


3 


2 


28 


A. Chiel Nat. B.uik Ex.mnnei 


3 





1 r 


2 


3 


or 






r ' i 






Depiitv Comptroller 


23 





J I 


1 


22 


5. Deputy Comptrollei 


28 





2 


1 


28 



* In some instances, a recommendation w.is omitted. 
Source: (Comptroller's branch liks. 



Table 1 1 

C"om])troller's Bi.tncli Decisions and Contrary Recommendations 

(1969-1973 Sample) 



No. olContiarv Stall 


Comptroller 
Approvals 


Coni])tioller 
Denials 


Combined 


Recommendations 


No. 


(Peicentage) 





26 


20 


46 




78 


1 


2 


6 


8 




14 


2 


1 


4 


3 




8 


3 
















4 
















5 
lOl Al. 



29 



30 



39 





100 



Source: Comptroller's braiuli files. 



ninety percent of the approvals. (Overall, it may be recalled, the 
Comptroller approved eighty-two percent and denied thirteen 
percent of all branch applications.^' ') 

When attention is centered on the cases involving disagreement, 
as before, the key issue seems to be whether the branch would be 
profitable. There was dispute over this in nine of the twelve cases; 
proponents cited rapid growth in the area and argued that other 
banks were doing well, while opponents contended that the area 
was adequately served, that profitability of the new branch was 
doubtful, and that the application was premature. 



211. See lable 3, p. 274 Mi/ti/i. 



LICENSING DECISIONS OF BANKING AGENCIES 131 

3. Decision grounds. What can be said about the Comptroller's 
decision process and grounds for decision, as set forth in the ap- 
plication files? First of all, it is worth noting what factors do not 
seem significant in most cases. Consider the factors enumerated in 
section 1816 of title 12 of the United States Code, which consti- 
tutes the statutory framework for the Comptroller's exercise of 
chartering discretion: "[1] The financial history and condition of 
the bank, [2] the adequacy of its capital structure, [3] its future 
earnings prospects, [4] the general character of its management, 
[5] the convenience and needs of the community to be served by 
the bank, and [6] whether or not its corporate powers are consis- 
tent with the purposes of [the statute]. "^'^ 

The first and second factors amount, in the case of a newly char- 
tered bank, to its initial capitalization. In none of the sample cases 
was inadequate capitalization mentioned as an adverse factor or 
reason for denial, and for a rather simple reason: the applicants 
will generally either conform their application to the amount of ini- 
tial capital which the agency indicates it deems desirable, or aban- 
don the application as not feasible under the circumstances. For an 
operating bank seeking a branch, these factors have more content. 
But if there is serious supervisory concern over its management 
or capital adeqtiacy or operating policies, a bank is made aware 
that there is no point in its applying for a branch at any location. ^'^ 
In effect, in both cases this issue is disposed of at an early stage and 
is not reflected in the final figures. 

The fourth factor, the general character of management, was 
mentioned in some cases, but in fact was rarely determinative. A 
lot of the charter application routine bears on this factor — the 
long biographical and financial questionnaires required of the 
organizers and principal stockholders and proposed managing 
officers, and the investigation reports made on them by the field 
examiner. It is generally understood, however, that if the agency 
objects to any of these persons, he will be replaced or dropped 
from the applicant group, so this factor too does not often deter- 
mine the final outcome. ^'^ 



L'lL'. 11' I S.C. § IMKi (HITO). ,SVr r//s,; 1 2 C. I- . R. S 4.2(1)) (1 97 1 ), 

21:^. I his is m;i<lc' (juiic t-xpluii in ilic KULBB's treatment ol "su])ei \ isoi y cleai aiue": 
see 12 Ci.K.R. 8 r)5(). 3(a)(7) (1974). the w iililioldini^ ol brandies is also used as a lorin ol 
siipeiN isoi \ pressure on an institution to (onloini to what the ageiicN legaids as desiiahie 
opeiatiiig |)oii(ies and piaciices. 

21-1. The Coniptiollef insists ih.u this |)ait ol the niemoianduin section ol the ex- 
aminei 's ie|)oi t be kept (onridenii.il, to ])i i)ti< I the ,inon\ init\ ol sources, the Coiiipti olici "s 
])()lit\ tallies with it the distinct possihiliiN ol personal unlanness, smce (lisc)ualiritati()n may 



132 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

The sixth factor, corporate powers consistent with the purposes 
of the act, to the extent it has any meaning at all, is satisfied by 
the use of a prescribed form of articles of incorporation. It was 
never referred to in anv wav in any sample case. 

That leaves factors three and five, future earnings prospects 
and the convenience and needs of the community; as already 
noted, these were the central points of disagreement in the recom- 
mendation chain. For branches, the debate was usually over 
whether the branch would be profitable, while for charters the is- 
sue was more often cast in terms of whether there was a "need" 
for a new bank. Analytical distinctions between the two factors 
were not clearly made, however. The discussion of community 
need sometimes, though not often, involved an assertion that the 
new entry would cause injury to existing banks or branches, but 
that argument shaded into the argument that there was not enough 
business for the new bank or branch to be profitable in the near 
future. 

Most of the Comptroller's decisions, therefore, seem to turn on 
assessments of "need" and "profitability," and it is these two fac- 
tors that warrant closer scrutiny. As it stands, each participant in 
the recommendation chain forins his own judginent as to profit- 
ability and reflects his own concept of need; there is no discussion 
of, or explicit agreement on, the imderlying premises. Unless that 
consideration is systematically undertaken and articulated, the 
Comptroller's decision process will never be comprehensible, 
either internally or externally. 

To afford an illustration of what would be entailed, let us ex- 
plore these concepts somewhat finlher, from a critic's standpoint. 
What does it mean to inquire whether the commimity "needs" a 
new bank or branch? How is the public need for any new facility 
or service determined, whether it be a bank or a department store 
or supermarket? The answer for most products and services is 
whether the public is willing to patronize it enough and pay 
enough for it to be supplied at a profit — in other words, profit- 
ability is a measure of the extent of "need." It ensures that the 
social value of what is being provided, as measured by the public 
itself and what it is willing to pay, exceeds the social costs of sup- 
plying it. It is not apparent why this is not the standard of need to 
apply to banking offices as well. In the Comptroller's files there 



1)1- louiulid (HI iiioiKoiis <)i (liNloilid inloi m.ilKin lli.U is iiol miI)|ih I lo cornHlioii oi ii- 
bun.il. 



LICENSING DECISIONS OF BANKING AGENCIES 133 

are numerous examples of the use of much cruder standards — for 
instance, whether there are other banking offices that customers 
can go to without incurring what is, in the examiner's opinion, too 
much inconvenience, or whether a casual interview process with 
local businessmen turned up statements that they wanted a new 
bank. It is not at all clear that the "need" criterion does not re- 
solve itself into the other key issue of profitability. 

But why should the Comptroller be concerned with profitability? 
That factor is usually the worry of those who are financing a new 
venture; they have the most at stake and every reason to go into 
the matter as carefully as they can. It is hard to see why either 
superior sources of information or superior thoroughness of 
analysis would characterize the Comptroller's office as it grinds 
through hundreds of applications each year. It is as if a Washing- 
ton agency had to approve each decision of a grocery chain con- 
cerning location of new outlets. A presumed agency expertise must 
find some rational foundation in its actual capacities, or it is an 
empty shibboleth. 

But suppose we put aside the question of whether the agency or 
the applicant is in the better position to make judgments about the 
profitability of a particular location, and assume that applicants 
will make more mistakes than the agency will — how is the public 
interest thereby threatened? A bank simply closes down a branch 
that does not become profitable; rather than attempting to second- 
guess the bank's profitability estimate, the Comptroller could 
merely ascertain whether the bank could afford the cost ot an er- 
ror. Similarly, in the case of a new charter, the O)mptroller could 
merely require that the amount of initial capital be sufficient to 
cover several years of operating losses. 

A familiar rejoinder would be that we are concerned about the 
effects of a mistaken judgment, not merely or even primarily on 
the applicant, but on other institutions. In the jargon of the busi- 
ness, the concern is that new entry would lead to an "overbanked" 
condition. In more general terminology, the argument is that er- 
rors of entry judgment (which by assumption are made more often 
by applicants than by the agency) will at times j)roduce excess 
capacity. Although long run excess capacity in an industry is nor- 
mally corrected by elimination of the industry's less clfkicnt fa- 
cilities or firms, the argument continues, banking is a s|)ecial case 
because the contraction may involve bank failure. At this |)oint the 
argument tends to become either emotional or obscure. To some, 
the very words conjure up the collapse of the 193()s and the 
thought is unacceptable, though the fact is that several hundred 



134 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

banks have failed since the 1930s. ^'^ To others, apparently, a 
policy of preventing bank failures is viewed as having major bene- 
fits but no costs.^'® 

A less extreme position would be that, while entry controls and 
a policy of failure prevention do have costs, they are outweighed 
by the benefits. But that position too is open to criticism on both 
theoretical and empirical grounds. For example, to what extent 
do entry controls actually prevent bank failure? At best (or worst), 
entry controls can confer a protected monopoly position on certain 
firms; that may be reflected in the present market value of the 
firm, but it does not constrain the future operations and policies 
of risk-acceptance by the firm. Nor is it easy to see the large metro- 
politan centers and national banking markets, in which the big 
banks operate, as protected monopolies; there are too many sub- 
stantial competing firms. To the extent entry controls have suc- 
cessfully created monopoly positions (or "prevented overbanking," 
in the preferred phrase), it is probably in local markets and small- 
er towns. Is the purpose of entry controls mainly to prevent the 
failure of small banks? Why, and for whose benefit? Presumably, 
it is not to protect the stockholders; that is the very risk they under- 
take to bear. Perhaps to protect the depositors? But most of them 
are covered by deposit insurance; the smaller the bank, the higher 
tends to be the percentage of its deposits that are insured. ^^^ De- 
posit insurance merely transfers the loss to the FDIC, so perhaps 
the need is to protect the insurance fund? But the failure of small 
banks is the kind of event that the FDIC and FSLIC insurance 
funds can most easily handle, and there is little reason to doubt 
their adequacy for this purpose. ^^^ 



215. See 1973 FDIC Ann. Rep. 227 ( lable 121). 

216. For a quite contrary \iew. see Tiissing, The Case for Bank Failure, 10 J. Law & Econ. 
129 (1967). Some of the costs to bank customers are reflected in the monopoly franchise 
value that attaches to new charters upon approval, a phenomenon that troubles the bank- 
ing agencies. Their res])onse has been to block immediate resales of controlling stock, to 
limit attorneys' fees charged successful applicants, and in general to tr\ to suppress the 
visible signs of the franchise value. See, e.g., FHLBB, Oitline of Inform.atig.v Ex. G No. 
20 (1967, rev. 1969); FDIC. Statement of Policy on Legal Fees, 37 Fed. Reg. 17778 (1972). 

217. As of June 29, 1968, 75 percent of total deposits in banks with under $5 million in 
deposits were in accounts below the insurance ceiling (which was then $15,000), while in 
banks with over $100 million in deposits, the figure was 34 percent. See FDIC, Slmmary of 
Accounts and Deposits i\ -All Commercial Banks 5 (1969). The insurance ceiling has 
now been increased to $40,000 bv Pub. L. 93-495. And a family can have a number of in- 
sured accounts in the same institution. See Scott, Some Answers to Account Insurance Problems, 
23 Bus. Law. 493 (1968). 

218. There would be even less reason if the insurance corporations were not lequired 
to charge all firms a single rate regardless of indi\iduai risk. For a moic comprehcnsi\e dis- 



LICENSING DECISIONS OF BANKING AGENCIES 135 

In short, the reasons for the Comptroller's concern with entry 
controls, and with overriding applicants' estimates of need and 
profitability, are by no means self-evident or self-validating. If it 
is to protect banks and their stockholders from losing money on 
poor site selections, it seems unwarranted. On this score, it also 
seems unsound, for it is hard to give credence to the proposition 
that on the whole the Comptroller's staff in Washington or in the 
field can judge the business potential of different locations across 
the entire United States better than the applicants can. If it is to 
protect depositors, or really the deposit insurance funds, from 
losses due to failures caused by "unhealthy" competition, it seems 
unnecessary on the one hand and largely impossible on the other. 
Among other things, there are too many sources of competitive 
pressure quite outside the Comptroller's control — not only state 
banks, and savings and loan associations, but also, increasingly in 
recent years, other investment media (such as mutual funds and 
direct investment in the capital markets) and other sources of 
loans (such as insurance companies, or direct access to the capital 
markets through commercial paper or variable-rate notes). It is 
not surprising, therefore, to find that economists have become 
dubious about the justification and effects of entry controls in 
banking. ^^^ 

The foregoing discussion is not intended to reach a conclusion 
or be definitive, but merely to open up the kind of issues that the 
Comptroller should be facing in his administration of entry con- 
trols for national banks. What are the justifications and objec- 
tives of entry controls that the Comptroller believes have current 
validity? What determinations, concerning need or profitability 
or unhealthy competition or whatever, is he thereby required to 
make? On what sort of findings of fact are those determinations 
to be based? 

The answers to those questions will not be obtained by opening 
up the "confidential" part of the Comptroller's files, as some of 
the cases^^° sought to do, for they cannot be found there either. 
So far as an examination of over a hundred branch and charter 



cussion, see Stolt & Mayer, Ki^k rntrl Regulaltou in Blinking: Some l')oj)iisiih /in Fedeuil Deposit 
Insumnce Reform, 23 Stan. L. Rev. 857 (1971). 

219. See geiieially Alhadefl, A Reconsideratioii oj Reslriclioiis on Bank Eiiliy, 76 Q.J. F.con. 
246 (1962); Melt/cr, ,Wc/;o) Issues in the Regulation of Financial Institutions, 75 J. Poi. F.( on. 
482 (1967); Felt/man, Bank Entry Regulation: Its Impact and Purpose, 3 N.at. B.wk. Rf.v. 163 
(1965). 

220. See text and notes at notes 1 1 1-20 supra. 



136 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

files reveals, the problem is one of developing explicit answers 
and standards; they simply do not now exist. 

Although this discussion has centered on the Comptroller, its 
applicability is not confined to him. In its essential characteristics, 
the branch and charter decision process of the FHLBB has the 
same shortcomings, though the Bank Board has much less often 
been taken to court. The purpose has been not to single out the 
Comptroller, but to use his procedures as a way of developing in 
some depth the problems presented by all the federal banking 
agencies in their licensing decisions. 

IV. Conclusions and Recommendations 

The judicial cases recounted in the first part of this paper dem- 
onstrated the determined resistance of the Comptroller and other 
agencies to providing applicants (and courts) with intelligible ex- 
planations of licensing decisions. The study of application files 
strongly suggests that at least one reason for that resistance is that 
there is no systematic and intellectually respectable basis for 
branch and charter decisions. Instead, there is a process of ad hoc 
recommendations and conflicting pressures, leaving fertile soil 
for a suspicion that the outcome can turn on political favoritism or 
outright corruption. ^^' In essence, the banking agencies have 
failed to develop and announce public policy on these questions, 
although Congress, by enacting vague and general statutory stan- 
dards, has in effect delegated to them a responsibility to do so.^^^ 
This failure cannot be justified or excused on the basis of insuffi- 
cient time for study or refiection or the accumulation of experi- 
ence; the Comptrollers office has been in existence, and making 



L'L'I. 1 Ik' l.ilfNl c\,iiii|)Un. iiuoKiiit; (li.iit;cN ol l.ixoiilisin lor Nixon supporlc'is. have 
coiui'i 111(1 till' ( oinptrollfi \ .ippiov.il ol .i n.iiioii.il I). ink cli.nici lor .i gronp iliai iniliuloti 
l)\v.i\nc (). Andu-.is, v<r ^.^. I nnis. Ant;. -">. n»72. .ii 21. lol. (i. an<i />/.. Sept. 29. H)72. ai 
'M). n)l. 1; ilic CoinpiioJli-i s (Icni.il ol .i cliailcM lor .i bank ilial would liaxc (DinpcMcd uilli 
Cliai k•^ Ri'l)o/o"s ki-\ liJM.iv nt- B.nik t'v- I i um (!o.. \rr />/.. On. 17. U)7;V .ii 27. rol. 2: .md ilic 
I'Hi.lUVs .ippioxal ol aciouni in\nr. nui- lor .i new si.iic savings and loan in Kc\ Bisiaync 
lol mod In Rcl)o/o assoti.Uc-s. u'r id.. ()<1. 2:<, H>7;<. al M . col. 1. Sir ohn 1 H) CoNG. Rf.C. \\ 
*>2;i()-;57 (dail\ od. Oc(. 17. 1(17:5): "/. al K (»()r)S-(>() (daih od. Oci. 18. U»7:M: Hearings oii 
FiiKiiuiiil Stiiiitiiii- ami Rcgulalioti lii'/on' llir Siihrowiii. on Financial Inslilnlions of the Senate 
liiinkiiig. HoiiMiifr^ (Dirl I'lhan .Al/aiis Comiiiiltee . 9!5d Cong., 1st Scss. ;i78-8() (19715). 

222. (./. Morion v. Rni/, II.") t'.S. 199. 2:51-;52 (1971): " llic power ol an .uliniiiisir.iii\e 
.igeiu A to .idniinisier .i congiessionalK neaied and Innded jjiograni necessarilv re(]niies 
the lornuilalion ol polii\ .nid ihe nuiking ol rules lo lill anv ga|) lelt, iniplitid\ or e\|)liiillv, 
l)\ Congiess. . . . No in.iUer how r.ilional or eonsisieiU wilh longressional inieni a parlicul.ir 
de< ision niighi he. the delerniinalion ol eligil>ilil\ t.innol he made on an ad hoc basis l)\ the 
dispenser ol the linids." 



LICENSING DECISIONS OF BANKING AGENCIES 137 

such decisions, for over a century, and even the relative new- 
comers have had four decades. 

Why has this state of affairs been so long invulnerable to assault 
in the courts? Much of the explanation probably lies in the tradi- 
tional view that an applicant for a bank charter or branch has no 
"right" to engage in the banking business at the desired location; 
he is merely a petitioner for a "privilege" bestowed by the govern- 
ment, a suppliant for an act of largesse. Thus, the argument runs, 
he has no recognized "property" interest calling for due process 
protection. This attitude is reflected in the almost unanimous 
holding that the Comptroller and other agencies are not consd- 
tutionally required to reach decisions by way of trial-type hear- 
ings. ^^^ 

The right-privilege dichotomy, as a touchstone for due process 
analysis, has undergone a decline in recent years. ^^'' Welfare 
benefits were the classic case of governmental gratuities, to be dis- 
pensed in whatever manner the legislature might choose, but the 
Supreme Court in Goldberg v. Kelly'^'^^ imposed the requirement of 
a fair evidentiary hearing before they could be terminated. ^^^ The 
category of property interests protected by procedural due process 
was enlarged to include government benefits to which a person 
claims he is entitled. ^^^ A "legitimate claim of entitlement""'^^" may 
be based upon a statute whereby the government awards valuable 
benefits or privileges, just as much as upon contract or historically 
familiar forms of private property. 

Although these cases show which way the wind is blowing, it is 
doubtful that the Comptroller's house has yet been toppled by 
them. They involve the termination of a preexisting (and thus re- 
lied upon) benefit or status, rather than an initial decision on an 
application, and that consideration is usually viewed as strengthen- 
ing the claim that due process necessitates an evidentiary hearing. ■■^^'* 



22S. .S(7' UM .111(1 lioU-s .11 iioU's r)K-()H, I 11-11 ■.n/iia. 

'i'il. Sec \'a\\ .\lsl\ru-, Ihr Di-iiiisr iij llir Riiihl-I'tivilfiif l)i\lini lion in Ciiinliliiliiiiiiil l.iiw. Ml 
Hakv. L. Kkv. I t:<!) {1<)()H). 

22"). -VM I'.S. 251. (1970). 

22(). 11k- |)ic--lc'i iiiinalioii l.iii liciiint^ u-(|iiii iiiuiii u.is siihstcnuriiK fXU'iidcd lo diiv- 
cr's lidiisc- Mispciisioiis, lU'll \ limsDii, 102 IS. y.M-i (i<.»7l), to p.uolr 1 1\()( .iiioiis. .Moiiis- 
scy V. Brc'wci, lOH T.S. 171 ({•I72), ,m<l in probation i c-\(k alioiis, (iagiioii \. .S( ,ir|)clli, III 
U.S. 77H (l')7;<), 1)111 noi to (lis(liait;<- lioiii i(o\fmiiKiii cmploviiifiil, .\iiu-H \. Ki-iinrdv, 
IK) U.S. I:M (1971). 

227. Board ol Rci'ciiis \ . Roili, lOH T S. .->() 1 ( l<)72); I'ti i \ \ . Smdciiiiaim, lOH I'.S. :')<):< 
(1<)72). 

22H. lio.ird ol RoKcius \. Koili, lOK IS. .^(il. .■)77 (1972). 

229. .SVr. /'.((., Kc-uli, //((• \ni' I'lo/inlx. 7;i V,\l K I..|. 7:i'V 7 1 I (I9()l). llir diMiiulion li.is 



138 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Furthermore, ihev involve situations where either the statute or 
the agency has spelled out eligibility requirements for the benefit 
with some precision or the plaintiff is already its possessor, so the 
claim of "entitlement" is not difficult for a court to pass upon. By 
contrast, where both statute and agency have left the bases for con- 
ferring the benefit utterly vague, the threshold showing of entitle- 
ment would seem impossible to make.^^" Ironically, therefore, the 
poorer the job an agency does in developing policy standards, the 
more minimal will be the procedural requirements it must satisfy. 

But even more basic is the fact that the recent due process cases 
have been concerned with the need for a full evidentiary hearing. 
Although that is admittedly lacking in the banking decision pro- 
cess, it is not as yet the factor whose absence seems critical and 
whose presence is much to be desired. Judicialization of agency 
decision making is a remedy often prescribed, but its costs in terms 
of delay and expense frequently exceed by a wide margin its con- 
tribution towards improving the quality of decisions. ^^* 

At this stage, at any rate, the pressing need is for the articulation 
of policy rather than for trial-type hearings. The immediate prob- 
lem is not one of resolving disputes about historical facts, but of 
specifying the purpose and bases of the exercise of controls over 
entry into banking markets. In terms of legal form, that can be 
achieved in one of two ways: by the adoption of policy statements 
and the exercise of the rulemaking power, or by a process of case- 
bv-case adjudication and reasoned opinions. The route of policy 

not api^ealed to all c()iiii5>. Comptne Siiiiipter \. White Plains Housing .Aiith., 29 \.V.2fi 420, 
:V28 \.\.S.2(i 649. 278 X.E.2cl 892 (1972), !<•///( Daxis \. Toledo Metro. Housing Auth.. 311 
F. Supp. 795 (N.D. Ohio 1970). 

2;H). To h.ne a propei"t\ interest in a benefit, a |)ei son cie.irU must ha\e more tium an 
abstract need oi desire lor it. He must ha\e more than a unilateial expectation of it. He 
must, instead. ha\e a legitimate claim ol entitlement to it. 
Board ol Regents \. Roth. 408 U.S. 564. 577 (1972). 

231. PossibK the small group of cases where an applicant or oigani/er is rejected oi ex- 
cluded on personal grounds constitutes an exception. The present |)i<)ceduie ol disqualilica- 
tion on the basis of secret evidence might not withstand legal challenge: it can be argued that 
the person bemg branded .is unaccejitable is both stigmatized (at least wiiiiiii the agenc\ 
and among the .tjjplicant gioup. and. given interchange of information among the l)ank- 
ing agencies, on occasion with other agencies as well) and to some extent denied tiic lil)eri\ 
tf) enter a recognized occupation. .\t the same time, the reasons for secreiv do not nnolve 
lolt\ goals like protecting national securit\; in most ol the sample cases, tiie adverse reports 
concerned a pooi credit lating or financial position, and the source w.is treated as confi- 
dential siinpK to avoid embarrassment. L ndei these ciicumsiances. due process probabK 
entitles the barred ai)plic.int to an evidential v hearing. C/. Board ol Regents v. Roth. 408 
L .S. 564. 573-74 (1972); Willnei v. Committee on Character and Fitness. 373 L .S. 96 
(1963); Norlander v. Schleck. 345 F. Supp. 595 (D. .Minn. 1972). Ol course, as long as the 
linal decision rem.iins so totallv discretionarv. most such jiersons will be dissuaded bv their 
colleagues Irom ])ursuing the matter and alienating the agencv. 



LICENSING DECISIONS OF BANKING AGENCIES 139 

Statements and rulemaking seems preferable, because it tends to 
force the decision maker to confront the more fundamental ques- 
tions and think through and justify comprehensive answers;^^^ 
that may explain its relative neglect. Alternatively, at least in theory, 
an agency can develop a consistent policy in piecemeal fashion, by 
separate adjudications — but the world will never know it unless 
opinions are written and published. 

There is little that courts can do to force an agency to use its 
rulemaking authority, ^^^ but they are in a better position to require 
written explanations of decisions that are subject to judicial review, 
even in areas in which neither due process nor the Administrative 
Procedure Act^^^ requires trial-type hearings. The very concept 
of limited review requires that the decision maker provide a rea- 
soned justification for his action. As the Supreme Court said in 
Chenery II: 

If the administrative action is to be tested by the basis upon 
which it purports to rest, that basis must be set forth with 
such clarity as to be understandable. It will not do for a court 
to be compelled to guess at the theory underlying the agen- 
cy's action. ... In other words, 'We must know what a deci- 
sion means before the duty becomes ours to say whether it is 
right or wrong. '^^^ 

With a general decline in the level of automatic judicial deference 
to agency expertise has come a corresponding recent increase in 
the demand that agencies give reasoned explanations for their de- 
cisions, even when that is not required by the statute under which 
they are acting. ^^^ Most of these cases involve statutory review 
(where the statute under which the agency is acting has an explicit 
provision for court review) and that means that Congress intended 
for the agency to have to explain and defend its decisions in court. 

2:V2. C;/. Rohmsoii, I he Mrikuii; of A'liiinii\t)(ilivr I'oluy: Aiuitlit'i Ijiok al liidi'inakni^ and Ad- 
juduulton and Admnuslralive Procedure Reform, 118 U. Pa. L. Rev. 485, 526 (1970); Shaijiro, 
The C.hoire oj Rulemaking or Adjudiralion in the Dex'elopmenI of Administrative Policy, 78 Harv. 
L. Rkv. 921, 9:^7-40 (1965). 

23:?. Comfjaie NLRB \. W\ maii-CoKlon Cio., 'MJ4 L'.S. 759, 764-65 (19()9), with M.RB \. 
Bell .AcTospace Co., 416 US. 267, 290-95 (1974). 

234. See 5 f.S.C. §S 554. 556-57 (1970). 

235. SKC \. ChcnciN Coi])., 332 L'.S. 194, 196-97 (1947). See aho Biiilin^Mon I ruck 
Lines \. I niicd Siait-s, 371 I .S. 156, 167-69(1962); Phelps Dodge Corp. v. M.RB, 313 I'.S 
177, 197 (1911). 

236. See, e.g., Naiuial Resources Defense Counul \. KP.\, 178 1-.2(1 875 ( 1 si Cn. 1973); 
.Air Line Pilots .\ssii \. CAB, 475 (-.2(1 900 (D.C. Cn. 1973); Welllord v. Riiekelshaus, 439 
F.2d 598 (D.C. Cii. 1971); Kn\n onmenial Defense luiid \. Ruckclshaus, 439 K.2d 584 (D.Cl. 
Cn. 1971). 



140 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

In cases of nonstatutory review (where the statute lacks an express 
judicial review provision and the plaintiff relies on the general 
jurisdiction of the federal courts in seeking an injunction or declar- 
atory judgment), the courts have been more hesitant to intrude upon 
agency discretion, even by merely asking for explanation in any 
but a pro forma sense. But the same tendency is visible here,'^^^ 
and for the same reasons. Without explanation by the agency, as 
the banking cases previously discussed make clear, the court in af- 
fording judicial review is reduced to an unhappy choice between 
usurpation and futility. 

There is no longer much room for dispute that charter and 
branch decisions are subject to judicial review, at the behest of 
either applicants or competitors. ^^^ Though an applicant may have 
no right to a charter or a branch, he has a right to have his applica- 
tion decided according to law by the agency, and the right to ju- 
dicial review of that decision carries with it the necessity for ex- 
planation of its grounds. 

The real issue is how little explanation will suffice. As satisfac- 
tion with the performance of administrative agencies has lessened, 
the level of understanding being required has risen, and remands 
for a more intelligible explanation have become a commonplace. ^^^ 
In nonstatutory review (which includes the bank licensing cases), 
however, the courts have been less assertive, or at least less explicit. 
Overton Park^'^^ demanded simply "an adequate explanation" by the 
Secretary of Transportation for his action, leaving it largely to the 
district court to decide whether the administrative record already 
provided one or had to be supplemented through formal, if be- 
lated, findings or actual testimony and cross examination. Pitts^*^ 
did not change this position, though it did intimate that a "curt" 
explanation might be good enough. ^^^ 

2;?7. Sfe, f.g., C.iti/.ens lo Preserve Ovenon Park v. \'ol|)e, 401 U.S. 402 (1971): Citizens 
Ass'n V. Zoning Conimn. 477 F.2d 402, 408-10 (D.C. Cir. 1973); District of Col. Fedn of 
Civic Assns v. Volpe, 459 F.2d 1231 (D.C. Cir. 1971), cert, denied, 405 U.S. 1030 (1972). 

238'. See Catnp v. Pitts. 411 U.S. 138 (1973). 

239. See. e.g., Atchison 1'. 8c S.F. Ry. v. Wichita Bd. ot Trade, 412 U.S. 800, 807-09 
(1973): NLRB V. Madison Courier, Inc., 472 F.2d 1307, 1321-26 (D.C. Cir. 1972); USV 
Pharin;icemical Corp. v. Secretary of HEW, 466 F.2d 455, 461-62 (D.C. Cir. 1972); Greater 
Boston lelevision Corp. v. FCC, 444 F.2d 841, 851-52 (D.C. Cir. 1970). rert. denied, 403 U.S. 
923 (1971). 

240. C:iti/eMs to Preserve Overton Park v. \()li)e. 401 U.S. 402 (1971). 

241. Camp V. Pitts, 4 1 1 U.S. 138(1973). 

242. The authoritv ot that intiin.ition is undermined by the fact that the case was de- 
cided on the certiorari |)apers without either full briefing or oral argument. The Court was 
in ail likelihood luiacquainted with the history of diffkiiliies that had been encoiniiered 
in reviewing ihc Com|)troller's customarily "curl" explanations oi decisions. 



LICENSING DECISIONS OF BANKING AGENCIES 141 

But however full or inadequate the explanation that the courts 
are prepared to demand, the requirements of good administra- 
tion are an independent matter. Banking plays too central a role 
in our economic system, and the issues at stake in the administra- 
tion of entry controls are too important, for a continuation of the 
present regime of unexamined and unexplained exercises of dis- 
cretion. Whether they are ultimately forced to it by the courts or 
not, the banking agencies should articulate their policies and their 
reasons^*^ — and not in the curt and superficial manner oi^ Pitts. 

The usual response to such a recommendation is that writing 
opinions in all cases would be a substantial burden on overworked 
staffs, and generally of little value since decisions depend on par- 
ticular fact settings. There are answers on a number of levels. First 
and most fundamental, opinion writing is not the only or even the 
preferable way of establishing a clear policy; the route of policy 
statements and rulemaking, in terms of objective standards, would 
be more comprehensive and satisfactory. ^^'^ It also makes more evi- 
dent the gaps and inconsistencies in underlying premises and is 
therefore less likely to be adopted. On the charitable assumption 
that still more time and experience is necessary to work the prob- 
lems through, perhaps a practice of case-by-case adjudication can 
still be rationalized. Second, the overworked staff objection is gen- 
erally available against doing anything not already being done, but 
it has less application to the banking agencies than to most others. 
These agencies do not depend on Congressional appropriations for 
their funds, nor (with the exception of the FHLBB) on Congres- 
sional authorizations for their budgetary expenditures. If the job 
is worth doing, the staff can be increased. Third, the point about 
the limited value of most decisions does have merit. It has the most 
merit when policies are inchoate and standards are undefmed, so 
that opinions consist of a list of the "relevant" factors in a particular 
case and a conclusion, with the connecting links left to the reader's 
imagination or the court's "opening-presumption of correctness." 
Still, if that is all the decision process has to offer, written opinions 
at least expose the vacuity to the view of courts and critics, instead 
of hiding it behind a protective veil oi (obscurity and trust in ex- 
pertise. 

2IH. I 1r- suj^f^cslion IS iioi cx.ulh ,i new otic. Si-i- II. Ikik.ndin. 1 iiK liDfRVi .\|)MIMs- 
IKAIIVK .\(;f.s(:iks (l<)(J2). 

21}. riic \;ili(lilv ol siil)sl,mli\c mioiiii.il lulfiii.ikiim ol lliis soil u.is ii-cciilK (onsid- 
fifd al kni^lli .iiul susi, lined, loi llic \\i.. in .N.ilion.il IVliokuim Relnu'is .\ssn \ ll(;, 
4«2 K.2d (i72 (D.C. Cii. I<t7:<). ml. -h'innl. II.") IS. '».")! (i«.t74). SVr nlui \\-\Uy\\. ] u,lii uil R,- 
vifii! of In/on/ifil Huli'iiKikinir. (iO Va. I.. Rkv. IK') ( H)?)). 



142 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Another line of objection to explanatory opinions is based on 
the fact that applications are sometimes, though not often, rejected 
on grounds that the agency believes would be substantially injuri- 
ous to a bank or individual if made public. The existence of this 
possibility in a few cases is not an excuse for a general policy of 
non-explanation, and it ought not to be automatically invoked to 
shield all negative information. However, instances may remain 
where the agency believes it should not disclose certain informa- 
tion, in order to preserve (unwarranted) public confidence. If the 
information pertains to the applicant bank or group, the applicant 
could be afforded the option of withdrawing its request; if it per- 
tains to an objecting bank, the ground could be expressly stated 
but in general terms, such as "to prevent an adverse impact on 
other institutions. "^^^ 

It is submitted, therefore, that opinions in at least part of the 
cases should be regularly forthcoming. The following recommen- 
dations are designed to meet the need for a fuller explanation of 
the hcensing decisions of the federal banking agencies, while tak- 
ing into account distinctions between the various types of decisions 
and attempting to minimize the call on agency resources. 

Recommendation 1. General. The federal banking agencies 
should undertake to provide a full statement of their objectives 
in approving or denying charter or membership applications and 
branches, and should define in concrete terms the standards to be 
applied. This can be done best by the adoption of policy state- 
ments and rules of general applicability, which should be as spe- 
cific as possible. To provide additional clarity and understanding, 
reasoned opinions should be issued in certain situations as set forth 
below. 

It should be noted that as policy statements and definitions of 
standards become more specific, it becomes less burdensome to 
decide and explain individual cases. 

Recommendation 2. Primary supervisor decisions: Comptroller and 
the Federal Home Loan Bank Board. In the case of branch applica- 
tions, the numbers are large and many approvals seem a matter of 
routine. Probably only a small minority of approvals, but a much 
larger fraction of denials, would occasion a desire or need for ex- 
planation. For branches, therefore, the Comptroller and the 



245. If judicial review is soiiglu, the coun can, to the extent deemed waiiaiiied, atloid 
;>( camera or proiecti\e order treatmetit to the siippoi ting exideiice. 



I 



LICENSING DECISIONS OF BANKING AGENCIES 143 

FHLBB should furnish written opinions only when so requested 
by the applicant or by objectors, or when the agency believes the 
case presents issues of general importance. It would be appropri- 
ate to charge the requesting party an amount commensurate with 
the time cost of opinion preparation.^^'' 

Charter decisions are considerably fewer in number and, at 
present, more obscure in their grounds — in the Comptroller's case, 
even to his own staff, let alone applicants or protestants. An 
opinion should be furnished as a matter of course in all charter 
denials, since this is the most critical entry barrier, and in approvals 
when requested. 

Recommendation 3. Secondary supennsor decisions: Federal Reserve 
Board, Federal Deposit Insurance Corporation and Federal Savings and 
Loan Insurance Corporation. Branch approvals by the FRB and 
FDIC seem well-nigh automatic, no doubt because of reliance on 
the primary approval of other authorities, and an opinion re- 
quirement in all cases would seem excessive. Rejections are some- 
thing of an extraordinary event, however, and should always be 
accompanied by a full explanatory opinion. 

Membership applications may not wholly fall into the same cate- 
gory, though only the FSLIC has a significant rejection ratio. It 
would probably be worthwhile to furnish written opinions on re- 
quest, which would presumably be forthcoming mainly in the 
event of denial. 

Recommendation 4. Publication. All four agencies should sys- 
tematically collect and publish their licensing decisions and 
opinions in some convenient form. Depending on frequency and 
length, those of general importance might be included as part of 
monthly publications such as the Federal Reserve Bulletin or Federal 
Home Loan Bank Board Journal, or as an appendix to annual re- 
ports; others might be published as a separate series and made 
available in public files at the agency's Washington and field of- 
fices. ^''^ 

As a concluding caveat, it must be recognized that opinions may 
be a necessary ingredient in the development and application of 
a coherent and well-defined policy of administration of entry con- 



246. Sef 31 L'.S.C. ij 4K:^a (1970); N.iiioniil C.iblc IcIcMsion Ass'n \. Limed Si.acs, 
41.T U.S. '.VMi (1974). 

247. Cf. 5 U.S.C;. S 332(a)(2) (1970), a^ awnidi'd h\ I'ub. 1.. No. 9:^302, HH Si.ii. 13(>1. 



144 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

trols, but they do not ensure such a policy. The opinions will be 
largely worthless if they consist of no more than a list of factors or 
a recital of facts, followed by a leap to the conclusion boilerplate 
without articulation of the connecting theories and standards and 
tradeoffs. ^^** The decade of judicial decisions previously reviewed 
shows a growing disinclination on the part of courts to approve 
what they cannot follow, so long as they can view it as well in- 
tended and not corrupt. That tendency toward greater judicial 
rigor is to be applauded, but it is even more important that the 
agencies themselves move at last to discharge the policy making 
responsibilities inherent in the broad discretion conferred upon 
them by the Congress. 



2\S. Jii(lj:;c JciDiiR- li.iiik |).ii(l Ills respects lo such "woosli-u nosli" opinions in Old 
Coloin BoiuUioUlcrs v. Ncu York. \.H. K- H.R.R.. Hi 1 F.L'd 4 IS. 449-52 (2d Cn. 1947) 
(dissoiitini^ opinion). 



I 




LICENSING DECISIONS OF BANKING AGENCIES 145 



COMPTROLLER OF THE CURRENCY 
THE ADMINISTRATOR OF NATIONAL BANKS 

SUMHARY OF INFORMATION TO BE SUBMITTED TO THE REGIONAL 
ADMINISTRATOR OF NATIONAL BANKS WITHIN 30 DAYS AFTER THE 
FILING OF AN AFPLICATION TO ORGANIZE A NATIONAL BANK 

(1) Population of city, tovm, county, village or municipolity in which the 
proposed hank is to be located as of the last decennial census and a 
present estimate. 

(2) (a) Estimated population of the service area, for last decennial census 

and a present estimate from which the proposed bank is expected to 
generate 75% or more of its loans and deposits. 

(b) This area extends from the proposed bonk location approximately 

miles north; miles east; miles south; 

miles west. 

(Area must be outlined on the maps and aerial photographs submitted) 

(3) Provide the following information with respect to each competitive bank 
and branches thereof located within the service area of the proposed bank 
(if complete branch figures are not available use consolidated figures). 
In nonpar, so indicate. 

* Location marker Date established Deposits Loans 

number, names if within three 

and addresses years 

Distance by rood Interest rates paid Interest rates Rate of 

mileage and direction on savings deposits normally re- return on 

from proposed bonk and certificates of ceivcd on short- capital for 

deposits term business previous 

and instalment three years 
loans 

Hours of business Estimate of com- Loan-deposit 
mercial bank share ratio 
of mortgage loan 
business 

(4) Provide handy-sized duplicate maps (with a scale of miles and compass 
points) of the city or area appropriately labeled to show the location 

of the proposed bank and the names and locations of all banks and branches, 
including applications pending and those approved but not opened. Aerial 
photographs of reasonable coverage, including expected service area are 
helpful, and if available, one so labeled should be submitted. The expected 
service area of the proposed bank should be clearly outlined on the maps 
and on aerial photographs. 

(5) Provide the following information with respect to Savings and Loan, Building 
onj l,oan, ard Mutual Savings Banks located within the proposed service area. 

Names and Dote established Share Loans Distance by road 
Addresses if within three Accounts mileage and 



years 



direction from 
proposed bank 



(6) Indicate the number of the following institutions within the proposed service 
area three years ago and the number of each at the present: Credit Unions, 
Finance companies. Insurance companies granting loans, and other institutions 
granting loans. 

•Include applications pending and those opproved but not opened. 

Form CC 7022-18 
R«v 3/71 



146 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

(7) Indicate degree of intensity of competition in service area by Savings and 
Loan, Mutual Savings Banks, Credit Banks, etc. 

(8) Provide a copy of any survey made preliminary to filing the application for 
the proposed bank and also the cost for any such survey. 

(9) Comment on the economic character of the area to be served. 

A. If area is largely residential, state whether homes are generally owner- 
occupied, the extent of housing development, type, quality, price level, 
average age, nuraber of unsold new homes, and prospect for continued 
development . 

B. If primarily industrial or business, state the number and general types 
of business, and in the cases of principal employers, give the name of 
each company or firm, number of employees, and payroll, and comment on 
the consistency of employment and special skills required, 

C. Shopping center locations should be fully described. State the number 
of units, size as to total land and building area, number of individual 
parking spaces, accessibility to surrounding communities, the extent to 
which signed leases have been obtained, the nones of principal lessees, 
and provide information as to their financial responsibility, if not 
national concerns. 

D. Provide information regarding population growth potential; new businesses 
recently established or planned, etc. Discuss the traffic pattern, the 
street and road facilities, and their adecp-iacy. Describe geographical 
barriers, if any. 

(10) If no bonk in community, where is banking business conducted by residents? 

(11) Past bonking history of community. 

(J?) Proposed ownership of stock, is it to be widely distributed or closely 
held. Amounts to be taken by organizers, proposed directors, officers 
and *"hej.t foniilies. 

(13) Pinonc il position of city, town, village, school districts and county. 
Disoins rax collections, showing total levy, percentage collected and 

nr'eor >, etc. 

(14) L_i St 1 he mnjor types of loaning demands proposed bank expects to serve. 

(15) Give estimates of the volume of total deposits, showing the amount of 
public funds included in total and total loans expected at the end of 
the first year of operations, second and third year. 

(16) A detailed projection of earnings and expenses must be submitted showing 
the breakdown of income and expenses for each of the first three years of 
operations. 

(17) Give the following information regarding banking house and equipment as 
it applies: 

(a) If to be purchased, the separate costs of land, building, furniture 
and fixtures, and vault. 

(b) If to be leased, give terras in brief and describe the quarters. 

(c) If property is to be purchased or leased from a director, officer, 
or large shareholder, state name and other pertinent data. 

(d) Give expiration date of any option to purchase or lease. 

(e) If new construction, furnish anticipated completion dote. 

(f) If a temporary location is planned, furnish exact address, distance 
and direction from permanent location, and period it will be occupied. 

(g) State the approximate period of time that will be required to place 
bank in operation in temporary and/or permanent site. 

(18) Whot plans have been made to obtain fidelity insurance covering all 
individuals authorized to collect, receive or deposit funds from stock 

subscriptions? 



REPORT IN SUPPORT OF 
RECOMMENDATION 75-2 

AFFIRMATIVE ACTION IN FACULTY EMPLOYMENT 
UNDER EXECUTIVE ORDER 11246 



Jan Vetter* 
Introduction 

Many institutions of higher education hold federal contracts. As gov- 
ernment contractors, they fall subject to Executive Order 11246, as 
amended.^ The Order requires contractors to assure equal employment 
opportunity without regard to race, color, religion, sex or national origin 
in all the contractor's facilities, not just those involved in performance of a 
contract. In higher education, as elsewhere, administration of the Execu- 
tive Order, or contract compliance, program has provoked a good deal of 
controversy. From within Jiigher education there may be heard angry 
claims that the program seeks to override traditional standards of 
academic judgment and impose quotas of minority and women faculty.^ 
This charge the Government denies. At the same time, persons in- 
terested in improving the position among higher education faculty of 
minority groups and women criticize the program as ineffective. There 
may be some truth in both these positions. Indeed, they are not necessar- 
ily inconsistent. For a number of reasons the program — at least in higher 
education, perhaps more generally — lacks clear direction. It may be 
turned to a number of purposes but exists in danger of losing any particu- 
lar sense of purpose. 

It may seem surprising to find the contract device employed as a 
reform measure. This use of the government contract, however, is by no 
means unprecedented. The United States Government is a formidable 
presence in the American economy. Each year it consumes a substantial 
fraction of the goods and services the country produces. As sovereign. 



* Professor. University of California School of Law at Berkeley; Consultant to Committee on Grants, Benefits and 
Contracts. 

■ Exec. Order No. 11, 246, 3 C.F.R. .339 (1964-65 Comp.), amended by Exec. Order 11, 37.5, 3 C.F.R. 320 (1966-70 
Comp.), 42 U.S.C. S 2000e (1970). 

* See, e.g., Seabury, HEW and the Universities, COMMENTARY, Feb., 1972, at 38; ShUs, Academic Appoint- 
ment, I'niversity Aiitononn/ and the Federal Government, 9 MINERVA 161 (1971). For a critical view of the 
literature critical of the HEW program in higher education see Ezorsky, The Fight Over University Women, NEW 
YORK REVIEW OF BOOKS, May 16, 1974, at 32. 

147 



148 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

the Government also makes and enforces laws advancing its conceptions 
of wise policy. These activities are sometimes connected — the Govern- 
ment uses its power as consumer to achieve its aims as regulator.^ The 
antidiscrimination program carried out under Executive Order 11246 
represents perhaps the most important contemporary example. 

The Order obliges employers contracting with the Government to 
promise nondiscrimination on grounds of race, color, religion, sex or 
national origin and affirmative action to assure equal employment 
opportunity. If the Government finds that a contractor has breached 
these obligations, it may terminate existing contracts and declare him 
ineligible for future contracts, to mention only the more draconian reme- 
dies. In the degree to which an employer depends upon government 
contracts, it may seem, he will try to perform his commitments to nondis- 
crimination and affirmative action. Given the Government's wide reach in 
the marketplace, the argument follows, execution of this strategy should 
contribute in a major way toward curing discrimination in employment. 

Except for a short period around the close of the Second World War, 
executive orders attacking employment discrimination have been in ef- 
fect since 1940.'' Up to the current order at least, they were not conspicu- 
ously successful. It is true that one investigator, discovering the exist- 
ence of the then effective order in 1957, announced the end of discrimina- 
tion.^ A successor, observing a flurry of activity carried out under a later 
order in the early 1960's, expressed optimism that the program might 
prove effective.^ In retrospect, both statements seem unguarded. Prog- 
ress clearly depended upon a much more substantial investment than had 
been committed. In 1965 the present order was promulgated, and the 
program entered a period of reorganization and expansion. The Labor 
Department has been given responsibility for administration of the pro- 
gram. The Secretary, pursuant to a delegation contained in Executive 
Order 11246, has issued a series of detailed regulations. Within the 
Department, the Office of Federal Contract Compliance implements the 
Order and regulations. This includes oversight of the work of other 
agencies designated by the Secretary of Labor as compliance agencies. 
For higher education, the compliance agency is the Department of 
Health, Education and Welfare and, within the Department, the Office of 



" See Miller, Government Contracts and Social Control: A Preliminary Inquiry, 41 Va. L. Rev. 27(1955). 

* The principal orders applying antidiscrimination regulation to government contractors are the following: Exec. 
Order No. 8802, 3 C.F.R. 957 (1938-43 Comp.); Exec. Order No. 9001, 3 C.F.R. 1054 (1938-43 Comp.); Exec. Order No. 
9346, 3C.F.R. 1280 (1938-43 Comp.); Exec. Order No. 10, 210, 3 C.F.R. 390 (1949-53 Comp.); Exec. Order No. 10, 227, 3 
C.F.R. 739(1949-53 Comp.); Exec. Order No. 10, 231, 3 C.F.R. 741 (1949-53 Comp.); Exec. Order No. 10, 243, 3 C.F.R. 
752 (1949-53 Comp.); Exec. Order No. 10, 281, 3 C.F.R. 781 (1949-53 Comp.); Exec. Order No. 10, 298, 3 C.F.R. 828 
(1949-53 Comp.); Exec. Order No. 10, 308, 3 C.F.R. 837 (1949-53 Comp.); Exec. Order No. 10, 479, 3 C.F.R. 961(1949-53 
Comp.);Exec.OnlerNo. 10, 557, 3C.F.R. 218(1954-58Comp.); Exec. Order No. 10, 925, 3C.F.R. 443(1959-63 Comp.); 5 
U.S.C. § 3301 (1970); Exec. Order No. 11, 246. 3 C.F.R. 339 (1964-65 Comp.), 42 U.S.C. § 2000e (1970); Exec. Order No. 
11, 375, 3 C.F.R. 320 (196&-70 Comp.), 42 U.S.C. § 2000e (1970). 

* Pasley, The Nondiscrimination Clause in Government Contracts, 43 Va. L. Rev. 837 (1957) ("It can fairly be 
said that discrimination by government contractors is now the exception rather than the rule.") 

« SOVERN. LEGAL RESTRAINTS ON RACIAL DISCRIMINATION IN EMPLOYMENT, ch. 5 (1%6). 



AFFIRMATIVE ACTION 149 

Civil Rights (OCR). HEW's Office of Civil Rights in Washington super- 
vises branches in ten regional offices of HEW around the country. It is 
the activity of OCR and the regional offices which has proved so contro- 
versial, stirring a great, but stationary, cloud of dust. 

A number of the factors which account for this situation are readily 
identified. OCR has only a small number of people to deal with a large 
number of institutions. No one seems to know how many institutions of 
higher education hold federal contracts, but of a total of approximately 
2300 such institutions, one estimate places the number of contractors at 
1100. It seems that many institutions have had little or no contact with 
the program. A great deal of time has been spent in more or less inconclu- 
sive battle between OCR and a handful of universities. 

The Government employees who work in the program are poorly 
trained and seem to have little knowledge or understanding of higher 
education. Consequently, much time and effort are expended on the job in 
discovering the intricacies of university organization and academic per- 
sonnel practices. Compliance review teams gather a great deal of data, 
but it is not always clear that what is obtained is understood. 

The Labor Department's regulations are overgeneralized. The con- 
struction industry is treated separately, but otherwise all contractors are 
lumped together under the same regulations. These regulations clearly 
have in view a model of industrial employment. They fit the conditions of 
faculty employment very poorly indeed. Such matters as faculty partici- 
pation in the management of universities, advanced work in intellectual 
disciplines and the unique combination of functions manifested in the 
professorial role find no reflection in the regulations. 

The sanctions the Government has at its disposal are clumsy and 
overpotent. Although OCR has requested government agencies not to 
contract with certain institutions for brief periods of time, it has never 
moved seriously to debar a university. In order to cut off a contractor, the 
Government must deny itself the contractor's services, and this the 
Government may be unwilling to do. Then too, OCR fears the impact such 
a step would have on the institutions. The university, of course, shares 
the same sentiment and moves some way to meet OCR's demands. In 
consequence, the parties negotiate toward a settlement, and such out- 
comes as are achieved reflect less the standards of the regulations than 
they do the chances of a bargaining process. 

More fundamental than any of these difficulties, in part their cause, 
is the ambiguous and contradictory character of the regulations them- 
selves, at least in relation to higher education. It is clear neither to 
OCR nor to institutions of higher education what it is that the regula- 
tions require. This helps account for such features of the program as 
poor administration, inefficiency, improvised solutions and prolonged 
negotiation. 



150 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Although the problems of administering the Executive Order in higher 
education are serious enough, the program has begun to encounter an 
additional set of problems created by a variety of antidiscrimination 
statutes which overlap the Executive Order. There have now come to 
exist many opportunities for duplicated effort, conflicting results, incon- 
sistent standards and administrative confusion. This makes urgent a 
more sustained and fruitful effort at coordinating the many arms of 
federal antidiscrimination regulation than has taken place thus far. 

The Executive Order Program — 
Administration in Higher Education 

Executive Order 11246 is the source of the contract compliance pro- 
gram. It requires that nonexempt ^ government contracts include a 
so-called equal employment opportunity clause, providing as follows: 

During the performance of this contract, the contractor agrees as follows: 

(1) The contractor will not discriminate against any employee or applicant for 
employment because of race, color, religion, sex, or national origin. The contractor 
will take affirmative action to ensure that applicants are employed, and that employ- 
ees are treated during employment, without regard to their race, color, reUgion, sex, 
or national origin. Such action shall include, but not be limited to the following: 
employment, upgrading, demotion, or transfer; recruitment or recruitment advertis- 
ing; layoff or termination; rates of pay or other forms of compensation; and selection 
for training, including apprenticeship. The contractor agrees to post in conspicuous 
places, available to employees and applicants for employment, notices to be provided 
by the contracting officer setting forth the provisions of this nondiscrimination clause. 

(2) The contractor will, in all solicitations or advertisements for employees placed 
by or on behalf of the contractor, state that all qualified applicants will receive 
consideration for employment without regard to race, color, religion, sex, or national 
origin. 

(3) The contractor will send to each labor union or representative of workers with 
which he has a collective bargaining agreement or other contract or understanding, a 
notice, to be provided by the agency contracting officer, advising the labor union or 
workers' representative of the contractor's commitments under Section 202 of Execu- 
tive Order No. 11246 of September 24, 1965, and shall post copies of the notice in 
conspicuous places available to employees and applicants for employment. 

(4) The contractor will comply with all provisions of Executive Order No. 11246 of 
September 24, 1965, and of the rules, regulations, and relevant orders of the Secre- 
tary of Labor. 



' Section 204 of Exec. Order No. 11246 provides: 

The Secretary of Labor may, when he deems that special circumstances in the national interest so require, exempt 
a contracting agency from the requirement of including any or all of the pro\'isions of Section 202 of this Order in 
any specific contract, subcontract, or purchase order. The Secretary of Labor may, by rule or regulation, also 
exempt certain classes of contracts, subcontracts, or purchase orders (1) whenever work is to be or has been 
performed outside the United States and no recruitment of workers within the limits of the United States is 
involved; (2) for standard commercial supplies or raw materials; (3) involving less than specified amounts of money 
or specified numbers of workers; or (4) to the extent that they involve subcontracts below a specified tier. The 
Secretary of Labor may also provide by rule, regulation, or order, for the exemption of facflities of a contractor 
which are in all respects separate and distinct from activities of the contractor related to the performance of the 
contract: Provided, That such an exemption will not interfere with or impede the effectuation of the purposes of 
thisOrden And provided further. That in the absence of such an exemption all facilities shall be covered by the 
provisions of this Order. 



AFFIRMATIVE ACTION 151 

(5) The contractor will furnish all information and reports required by Executive 
Order No. 11246 of September 24, 1965, and by the rules, regulations, and orders of 
the Secretary of Labor, or pursuant thereto, and will permit access to his books, 
records, and accounts by the contracting agency and the Secretary of Labor for 
purposes of investigation to ascertain compliance with such rules, regulations, and 
orders. 

(6) In the event of the contractor's non-compliance with the nondiscrimination 
clauses of this contract or with any of such rules, regulations, or orders, this contract 
may be cancelled, terminated, or suspended in whole or in part and the contractor may 
be declared ineligible for further Government contracts in accordance with proce- 
dures authorized in Executive Order No. 11246 of September 24, 1965, and such other 
sanctions may be imposed and remedies invoked as provided in Executive Order No. 
11246 of September 24, 1965, or by rule, regulation, or order of the Secretary of 
Labor, or as otherwise provided by law. 

(7) The contractor will include the provisions of Paragraphs (1) through (7) in every 
subcontract or purchase orderunless exempted by rules, regulations, or orders of the 
Secretary of Labor issued pursuant to Section 204 of Executive Order No. 11246 of 
September 24, 1965, so that such provisions will be binding upon each subcontractor 
or vendor. The contractor will take such action with respect to any subcontract or 
purchase order as the contracting agency may direct as a means of enforcing such 
provisions including sanctions for noncompliance: Provided, however, that in the 
event the contractor becomes involved in, or is threatened with, litigation with a 
subcontractor or vendor as a result of such direction by the contracting agency, the 
contractor may request the United States to enter into such litigation to protect the 
interests of the United States.^ 

The Order places the Secretary of Labor in charge of the contract com- 
pliance program and gives him authority to adopt rules and regulations 
and issue orders, to require compliance reports from contractors and 
subcontractors and to provide for hearings for compliance, enforcement 
or educational purposes.^ A series of "sanctions and penalties" are 
specified, including: (1) publication of the names of noncomplying con- 
tractors, (2) recommendation to the Justice Department for suit to en- 
force the provisions of the Order, (3) recommendation to the Justice 
Department or the Equal Employment Opportunity Commission for 
institution of proceedings under Title VII of the Civil Rights Act of 1964, 
(4) recommendation to the Justice Department for criminal proceedings 
for furnishing false information to the Secretary of Labor or a contracting 
agency, (5) cancellation, termination or suspension of contracts or por- 
tions of contracts for non-compliance, (6) debarment of contractors as 
eligible bidders on government contracts."* (Of this list of possible sanc- 
tions, the ones of practical significance in the administration of the pro- 
gram have been those providing for termination and cancellation of 
contracts and debarment.) Government contractors are divided into two 
classes — construction and nonconstruction. Institutions of higher educa- 
tion fall in the latter category, and it is the program for nonconstruction 



' Exec. Order No. 11, 246 § 202. See also 41 C.F.R. § 60-1.4 (1973). 
' Exec. Order No. 11, 246 §§ 201, 203, 208. 
* Id. § 209. 



152 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

contractors that is of concern here.^ The Order allows the Secretary of 
Labor to delegate his functions or duties "except authority to promulgate 
rules and regulations of a general nature." ^ The Secretary has desig- 
nated the Department of Health, Education and Welfare as the com- 
pliance agency for a number of industries including medical, legal and 
education services. HEW, therefore, administers the contract com- 
pliance program in higher education pursuant to regulations promulgated 
by the Secretary of Labor. 

The Labor Department has issued a set of regulations (which seem 
always to be in the process of revision) controlling administration of the 
program. These are found in 41 CFR Chapter 60 and include: "Obliga- 
tions of contractors and subcontractors" (41 CFR 60-1), "Affirmative 
action programs" (41 CFR 60-2), "Employee testing and other selection 
procedures" (41 CFR 60-3), "Sex discrimination guidelines" (41 CFR 
60-20), "Hearing rules for sanction proceedings" (41 CFR 60-30), 
"Examination and copying of OFCC documents" (41 CFR 60-40), 
"Guidelines on discrimination because of religion or national origin" (41 
CFR 60-50) and "Contractor evaluation procedures for contractors for 
supplies and services" (41 CFR 60-60). The more important of these in 
the administration of the program are "Obligations of contractors and 
subcontractors," "Affirmative action programs," "Employee testing and 
other selection procedures," "Sex discrimination guidelines" and "Con- 
tractor evaluation procedures for nonconstruction contractors." "^ 

Much of the regulation on "Obligations of contractors and subcontrac- 
tors" repeats the provisions of the Executive Order and outlines its 
requirements at a greater level of detail. Exemptions from the Order are 
specified.® Compliance agencies are instructed to develop programs for 
administration of the Order. ^ Contractors are required to furnish com- 
pliance reports annually and to supply with bids information relevant to a 
determination of compliance status. ^° Segregated facilities are prohib- 



•■* Part II of Exec. Order No. 11, 246 deals with nonconstruction contractors, Part III with feflerally assisted 
construction contracts. 

« /(/. S 401. 

' The "Guidelines on discrimination because of religion or national origin" stand in some contrast to the regulations 
dealing with race and sex discrimination. Contractors are instructed to review their employment practices "to determine 
whether members of the various religious and/or ethnic groups are receiving fair consideration for job opportunities." If 
the review shows deficiencies, a contractor is to undertake "outreach and positive recruitment activities." Religious and 
ethnic discrimination is made subject to the OFCC compliance review and complaint procedure. However, it is made clear 
that "the scope of the employer's efforts shall depend upon all the circumstances, including the nature and extent of the 
employer's deficiencies and the employer's size and resources." Contractors need not establish affirmative action plans, 
with their sub-structure of utilization analyses and goals and timetables, to deal with religious and ethnic discrimination. 
The elaborate criteria applied to employer selection procedures need not be satisfied. The Guidelines provide that 
contractors must take reasonable steps to accommodate employees' religious practices if they can do so without "undue 
hardship." The question of hardship entails consideration of "(a) business necessity, (b) financial costs and expenses, and 
(c) resulting personnel problems." This seems a good deal more indulgent than various provisions of the Sex Discrimina- 
tion Guidelines. 

" Section 60-1.5, 41 C.F.R. ch. 60 specified certain exemptions, including, interalia, contracts not exceeding $10,000 
and contracts to be performed outside the United States by employees not recruited domestically. 

' Id. at « 60-1.6. 

"> Id. at § 60-1.7. 



AFFIRMATIVE ACTION 153 

ited.^^ Compliance reviews, consisting of "comprehensive analysis and 
evaluation" of employment practices as they bear on contractors' obliga- 
tions for nondiscrimination and affirmative action, are established as a 
basic tool of the program. The regulation further provides that no con- 
tract of $1,000,000 or more is to be awarded unless satisfactory com- 
pliance has been determined through a pre-award review or a compliance 
review conducted within the preceding twelve months. ^^ Procedures for 
processing complaints are set up,^^ and a system of hearings for cancella- 
tion, termination and debarment is established.^'* Contractors are in- 
structed to permit access to their records for purposes of investigation. ^^ 
Most significantly, contractors (and subcontractors) with fifty or more 
employees and a contract of $50,000 or more are required to develop 
written affirmative action programs. ^^ 

The regulation on "Affirmative action programs" — Revised Order No. 
4 — is in many ways the heart of the contract compliance program. 
According to Order 4, "an affirmative action program is a set of specific 
and result-oriented procedures to which a contractor commits himself to 
apply every good faith effort " ^^ Such a program rests on two devices: 
utilization analyses and goals and timetables. The first of these entails an 
obligation of the contractor to determine if minority group members or 
women are encountered less frequently at various levels and in various 
areas of his operations than would be expected in view of their availability 
("underutilization"). In the event that analysis discloses underutilization, 
or a "deficiency," the contractor must establish "goals and timetables" — 
predictions of increased utilization, to be achieved by good faith effort, 
according to a prescribed time scale to the point at which the deficiency is 
eliminated. ^^ Persons who are discovered to be suffering from the effects 
of past discrimination make up an "affected class," and "corrective action" 
measures must be instituted to establish compliance. ^^ An affirmative 
action program must in addition include a number of elements the regula- 
tions summarize as follows: 

(a) Development or reaffirmation of the contractor's equal employment opportu- 
nity policy in all personnel actions; 

(b) Formal internal and external dissemination of the contractor's policy; 

(c) Establishment of responsibilities for implementation of the contractor's 
affirmative action program; 

(d) Identification of problem areas (deficiencies) by organizational units and job 
classification; 



" Id. at § 60-1.8. 

>» Id. at § 60-1.20. 

'» Id. at S§ 60-1.21-1.24. 

'* Id. at § 60-1.26. 

"Id. at§ 60-1.43. 

">Id. at §60-1.40. 

"41 C.F.R. §60-2.10. 

">Id. at §§60-2.11, 60-2.12. 

'»Id. at §60.2.1. 



154 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

(e) Establishment of goals and objectives by organizational units and job classifica- 
tion, including timetables for completion; 

(f) Development and execution of action oriented programs designed to eliminate 
problems and further designed to attain established goals and objectives; 

(g) Design and implementation of internal audit and reporting systems to measure 
effectiveness of the total program; 

(h) Compliance of personnel policies and practices with the Sex Discrimination 
Guidelines (41 CFR Part 60-20); 

(i) Active support of local and national community action programs, designed to 
improve the employment opportunities of minorities and women; 

(j) Consideration of minorities and women not currently in the workforce having 
requisite skills who can be recruited through affirmative action measures. ^° 

Many actions a contractor must take in conducting a utilization analysis, 
in establishing goals and timetables and in satisfying the other require- 
ment of an affirmative action program are stipulated in the regulation. In 
sum, affirmative action demands attempts to seek out eligible minority 
and female candidates, efforts — as by way of training and provision of 
child care — to redress disadvantages from which minorities and women 
are thought to suffer and continuous, systematic and detailed oversight of 
personnel policies and practices to eliminate discrimination and guard 
against inadvertent or unconscious bias. 

The regulation on "Employee testing and other selection procedures," 
though prinicipally directed at formal testing programs, covers all 
methods of "hire, transfer, promotion, training or retention." "Test" is 
defined as "any paper-and-pencil or performance measure used as a basis 
for any employment decision" as well as "all other formal, scored, quan- 
tified or standardized techniques of assessing job suitability including, for 
example, personal history and background requirements which are spe- 
cifically used as a basis for qualifying or disqualifying applicants or 
employees, specific educational or work history requirements, scored in- 
terviews, biographical information blanks, interviewers' rating scales 
and scored application forms. "^^ Contractors using tests are required to 
develop evidence of the test's validity — that is, demonstration of a 
relationship between test performance and job behavior. Minimum 
standards for validation are prescribed, ^^ and separate demonstrations of 
validity for minority groups and women are demanded where "technically 
feasible." ^^ If tests of substantially equal validity are available, contrac- 
tors are expected to use the test "which will have the least adverse effect 
on the employment opportunities of minorities or women." 2"* Contrac- 
tors are not required to use "tests," but where there is evidence suggest- 
ing that techniques other than tests have had the effect of discriminating 



20 Id. at § 60-2.13, as amended July 8, 1974, 39 Fed. Reg. 25654. (1974). 

2' 41 C.F.R. § 60-3.2. 

" Id. at § 60-3.5. 

" Id. at § 60-3.5(b)(5). 

"Id. at §60-3.14. 



AFFIRMATIVE ACTION 155 

— e.g., underutilization is found, evidence of validity may be required. If 
the contractor is "unable or unwilling to perform such validation studies," 
then "he has the option of adjusting employment procedures so as to 
eliminate the conditions suggestive of employment discrimination." ^^ 

The "Sex discrimination guidelines" are currently shifting in content, 
the text of a proposed revision having appeared in the Federal Register 
at the end of December, 1973. The principal changes under consideration 
relate to "corrective action," insurance and pension and retirement plans 
and maternity benefits. Otherwise, both versions cover much the same 
ground. Thus, contractors must recruit among both sexes for all jobs, 
may not advertise in "Male" and "Female" columns, must provide equiva- 
lent facilities and services for both sexes and may not address requests 
for information — e.g., marital status — to applicants of one sex only.^^ 
Employees of both sexes must enjoy equal opportunity to qualify for any 
job.^*^ No sex-based distinction may be drawn in "employment oppor- 
tunities, wages, hours, or other conditions of employment," ^'^^ sex- 
linked seniority lines, different retirement ages for men and women, 
discrimination in compensation and anti-nepotism rules which bear un- 
equally on one sex are explicitly prohibited.^® A contractor may not 
justify sex discrimination by reliance on state protective legislation — 
e.g., a law limiting the weight women may be required to lift.^^ The 
proposed changes on insurance, pension and retirement plans and mater- 
nity benefits are discussed below. The subject of corrective action, intro- 
duced in the proposed guidelines for the first time, has to do with the 
problem of relieving the effects of past discrimination.^^ For example, the 
effects of historic sex segregation of jobs may persist after company 
policy is changed to permit transfer between jobs. This will likely occur 
when seniority for purposes of layoff dates from entry into a job, line of 
progression or department because women formerly locked into their 
positions by segregation may be reluctant to give up their accrued senior- 
ity upon transfer. The proposed regulation requires protection against 
consequences of this kind. In the example given, this might mean a shift 
to company-wide seniority for the affected women or an award of se- 
niority credit to transferring women back to the date on which it may 
be calculated they would have made the transfer in the absence of 
segregation. 

"Contractor evaluation procedures for contractors for supplies and 
services" — also known as Revised Order No. 14 — lays down procedures 



"/d. at §60-3.13. 

^ 41 C.F.R. §§ 60-20.2(aMc), 60-20.3(f). 

" Id. at § 60-20.3(b). An exception is made for jobs for which sex is a bona fide occupational qualification. 

""/rf. at § 60-20.3(c). 

" Id. at §§ 60-20.4, 60-20.3(1), 60-20.5(a), 60-20.3(j). 

*' Id. at § 60-20. 3(g). See also id. at § 60-20.6, providing that inconsistent state law is preempted. 

"> Id. at § 60-20. 2(e). 



156 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

for compliance reviews. As amended in February, 1974, this regulation 
describes a three-step review procedure consisting of (1) a desk audit, (2) 
an on-site review and (3) an off-site analysis of "information supplied by 
the contractor during or pursuant to the on-site review." ^^ A desk audit 
is a review of a contractor's written affirmative action program and 
"workforce analysis," ^^ to be furnished upon request of the compliance 
agency. Normally, ^^ an on-site review will be scheduled following the 
desk audit except in two classes of cases: (1) where the desk audit 
discloses the contractor's failure to make a reasonable effort to meet his 
obligations, in which case enforcement proceedings should be com- 
menced, and (2) where an on-site review has been conducted within the 
previous twenty-four months, the desk audit confirms that the contractor 
has a satisfactory program and the circumstances of the previous audit 
have not substantially changed. ^'* An on-site review, which is to include 
employee interviews, ^^ encompasses "(1) information necessary to con- 
duct an in depth analysis of apparent deficiencies in the contractor's 
utilization of women or minorities , (2) information required for a complete 
and thorough understanding of data contained in or offered in support for 
the affirmative action program and (3) information concerning matters 
relevant to a determination of compliance with the requirements of 
Executive Order 1 1246 (as amended) but not adequately addressed in the 
affirmative action program." ^^ Finally, an off-site analysis of material 
obtained during the on-site review is to be conducted "where issues have 
arisen concerning deficiencies or an apparent violation which, in the 
judgment of the compliance officer, should be more thoroughly analyzed 
off-site before a determination of compliance is made." ^"^ The regulation 
attempts to provide a good deal of protection against public disclosure of 
data furnished by contractors.^^ Information a compliance agency obtains 



3'41C.K.R. S 60-60.3. 

32 •• •Workforce analysis" is defined as a listing of each job title as appears in applicable collective bargaining 
agreements or payroll records (not job groups) ranked from the lowest paid to the highest paid within each department or 
other similar organizational unit including departmental or unit supervision. If there are separate work units or lines of 
progression within a department a separate list must be provided for each such work unit, or line, including unit 
supervisors. For lines of progression there must be indicated the order of jobs in the line through which an employee could 
move to the top of the line. Where there are no formal progression lines or usual promotional sequences, job titles should be 
listed by department, job families, or disciplines, in order of wage rates or salarj' ranges. For each job title, the total 
number of incumbents, the total number of male and female incumbents, and the total number of male and female 
incumbents in each of the following groups must be given: Blacks, Spanish-surnamed Americans, American Indians, and 
Orientals. The wage rate or salary range for each job title must be given. All job titles, including all managerial job titles, 
must be listed." Id. at IJ 60-2. 11(a). 39 Fed. Reg. 25654-55 (1974); 41 C.F.R. S 60-2.11(a), 39 Fed. Reg. 25654 (1974). 

'^ See "Exceptions to the desk audit requirements," Id. at S 60-60. 3(a). 

" /(/. at S 6a-60.3(b). 

'* /(/. at S 60-60.5. 

'«/(/. at I! 6O-60.3(b)(l). 

" Ifl. at S 60-60.3(c). 

^" See i<i. at Subpart C — "Disclosure and Review of Contractor Data" — and S 60-60.3(b)(l), limiting requests for 
information during on-site reviews to ". . . the specific items of information which the compliance officer determines are: (i) 
Necessary for conducting the review and completing the standard compliance review report, and (ii) Nor contained in or 
able to be derived from the material submitted by the contractor." See also S 60-60. 3(a) —"Exceptions to the desk audit 
requirements" and 5 60-60.3(b)(2). 



AFFIRMATIVE ACTION 157 

from a contractor is ordinarily available for public inspection and copying 
under the Freedom of Information Act.^^ This extends to affirmative 
action plans, conciliation agreements and validation studies of tests. '•^ 
However, a contractor may claim that certain data is not subject to 
disclosure and obtain a determination of the question from the compliance 
agency, with a right of appeal to the Director of OFCC.'*^ Material taken 
off-site for analysis and much information held by a compliance agency 
during a compliance review or an enforcement proceeding is considered 
part of an investigatory file compiled for law enforcement purposes and 
therefore exempt from disclosure under the Act for the duration of the 
review.'*^ Certain data, such as trade secrets, confidential commercial or 
financial data, the names of complainants and personnel and medical files 
are regarded as not subject to disclosure. ^^ A compliance review is to be 
concluded with an exit conference in which the compliance officer sum- 
marizes for the contractor the findings of the review. At that time or after 
further analysis the agency is to seek a written conciliation agreement 
committing the contractor to correct deficiencies revealed by the re- 
view. '*'* The entire process is to be completed expeditiously. Enforcement 
procedures "shall be applicable" if a contractor fails to supply an affirma- 
tive action program and supporting documents, including a workforce 
analysis, within thirty days.'*^ Within sixty days of receipt of the neces- 
sary documents the compliance agency is to have notified the contractor 
that he is in compliance or have issued a thirty-days show cause notice 
(subject to extensions of time for good cause).^® 



" Id. at § 60-60.4(ci); 41 C.F.R. 60-40. 

•"•41 C.F.R. !) 60-10.2. 

•" 41 C.F.R. § 6O-60.4(d). 

« 41 C.F.R. t) 60-40.3(5); 41 C.F.R. !)!) 60-60.4(c), (d). 

*^ 41 C.F.R. §60-40.3. It seems apparent that the Labor Department undertook this latest revision of Order No. 14 in 
order to secure by administrative revision rather than attempt by appeal reversal of the decision m Alameda County 
Legal Aid Sor iet y v.Schiiltz, Z49F.Supp.ni(N. D.Cal 1972), holding that the Freedom of Information Act (5 U.S.C. 
S 552) required disclosure of a great deal of material furnished the Government by contractors. Under the new version of 
Order No. 14 it may be argued that much information revealed to government agents in the course of compliance reviews 
escapes the Freedom of Information Act because it never comes into the Government's possession (material made 
available only during an on-site review) or makes up part of an investigatory file compiled for law enforcement purposes. 
Comments furnished the Labor Department following publication of the revision show that both contractors and 
antidiscrimination groups saw the issue of public disclosure as by far the most significant aspect of the revision. Given the 
expansbn in the legal concept of discrimination and the consequent narrowing of the gap between "underutilization" under 
the Executive Order and "discrimination" under Title VII of the Civil Rights Act of 1964, contractors have reason to fear 
that publicly disclosed data compiled for compliance review purposes will be used as evidence against them in Title VII 
cases and that plaintiff representatives may use such data to select defendants. These considerations operate with 
particular force where "affected class" situations are involved. Moreover, publicity itself can be used as a sanction. 
Plaintiff representatives might be expected to favor maximum disclosure for the same reasons contractors would resist it. 
Such material may also be helpful in litigation aimed at compelling compliance agencies to enforce the regulations because 
it may show that agencies are not in fact enforcing the regulations as written. Since academic personnel systems are oft«n 
thought to depend upon confidential written evaluations of professors by colleagues and scholars in the same field, the 
question of disclosure has been a particularly sensitive one in HEW's higher education program. Revised Order No. 14 
probably effects a satisfactory compromise from the point of view of most institutions of higher education; it is unlikely to 
please groups interested in employing the Order to advance minority and women faculty. 

"41 C.F.R. §60.60.6. 

" Id. at § 60.60.2. 

«/rf. at § 60.60.7, as amended July 8, 1974, 39 Fed. Reg. 25655 (1974). 



158 administrative conference of the united states 

The Office for Civil Rights 

Within HEW, the compHance agency for education, the agency respon- 
sible for performing the department's contract compliance functions is 
the Office for Civil Rights. Within OCR, the Higher Education Division 
has charge of the program for institutions of higher education. The 
Division's activities are conducted by a headquarters staff in Washing- 
ton, D.C. , and branch office personnel in ten regional offices. The location 
of the regional offices, the number of employees assigned to the executive 
order program in higher education as of June 30, 1973, and the number 
projected for June 30, 1974, are shown below: 



Headquarters VVashington, D.C. 
Region: 

I Boston 

II New York City 

III Philadelphia 

IV Atlanta 

V ; . . . .Chicago 

VI Dallas 

VII Kansas City 

VIII Denver 

IX San Francisco 

X Seattle 



There are an additional 48 employees projected for June 30, 1974, who 
will have responsibility for Titles VI and IX of the Civil Rights Act of 1964 
(Title IX having been added by the Equal Educational Opportunity Act of 
1972). 

OCR's activities under the Executive Order might be divided into 
three categories: (1) performance of compliance reviews, (2) investigation 
of complaints and (3) furnishing technical assistance to higher education 
institutions. OCR's statistical record of its activities in higher education 
is not all one might wish, but the following data, supplied by OCR, gives 
some idea of the scale of its operations. In the period November 16, 1971, 
to December 31, 1972, OCR processed higher education affirmative ac- 
tion plans as indicated: 

Regions I II HI IV V VI VII VIII IX X Total 

AAPs approved interim or final 1110 11 8 7 1 30 

AAPs rejected 13 6 5 11 5 8 3 51 

AAPs pending 15 17 3 6 24 9 21 17 4 116 



6/30/73 


6/30/74 


19 


19 


7 


10 


13 


14 


6 


10 


14 


13 


10 


13 


10 


12 


— 


8 


4 


9 


13 


13 


4 


6 


100 


127 



AFFIRMATIVE ACTION 159 

During the period January 1 to July 23, 1973, sixty -two affirmative action 
plans were received, of which three were given final approval. The rest 
remained pending; none were rejected. Five plans were requested but 
not received. Since July 23, 1973, only a very few plans have been 
approved. Statistics on the number of plans approved fail to reflect the 
actual condition of the program. During the period in which there had 
been sustained compliance activity in higher education standards for 
approval of affirmative action programs have grown more stringent. 
Consequently, many plans previously approved, including plans adopted 
by some leading universities, do not meet OCR's current conception of 
the requirements of Order No. 4. The Director of the Higher Education 
Division has estimated that the number of approved plans which do meet 
this standard is probably nine (excluding junior colleges) and in any case 
not more than nineteen (as of April, 1974). 

Statistics on the handling of complaints are, if anything, even more 
fragmentary. According to figures supplied by OCR, the agency received 
544 complaints between November 16, 1971, and December 31, 1972. 
(These include both academic and non-academic staff.) Of these, 355 
claimed sex discrimination and 189 charged discrimination on grounds of 
race and national origin. Two hundred twenty-five complaints were "set- 
tled or closed," seventy-six were under investigation, 107 had not been 
reached for investigation and 137 had been transferred to the Equal 
Employment Opportunity Commission. (EEOC acquired jurisdiction 
over higher education in March, 1972, and complaints filed with OCR 
after that date were transferred to EEOC. So-called "class complaints" 
— complaints filed on behalf of an individual and other persons similarly 
situated — of which eighty-eight were pending on December 31, 1972, 
were divided into class and individual aspects after EEOC's entry into 
the field, with the former component of the complaint being retained by 
OCR and the latter referred to EEOC. OCR currently has this arrange- 
ment under review.) The disposition of complaints carried as "settled or 
closed" is not clear. Many appear to have been dismissed as lacking in 
merit; in at least a few cases the agency obtained backpay settlements or 
reinstatement. Currently, OCR has 303 Executive Order complaints 
pending, of which 180 are class complaints and 123 individual complaints. 
These cases date back in some instances to 1969. (OCR is also processing 
at the present time some 62 complaints under Title VI and Title IX.) By 
the end of March, 1974, OCR had completed seventy-three letters of 
findings on individual and class complaints during the current fiscal year. 

OCR employees spend some part of their time responding to inquiries 
and requests for assistance from institutions. Thus, in this fiscal year 
OCR anticipates furnishing guidance to about 178 institutions. In Oc- 
tober, 1972, OCR issued its "Higher Education Guidelines," giving an 
interpretation of the OFCC regulations in the higher education context. 



160 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Over a long period of time OCR has been attempting to prepare a 
technical assistance package supplying information bearing on the avail- 
ability for academic positions of minority group members and women and 
discussing methods of calculating availability for purposes of determining 
underutilization and setting goals and timetables. 

It seems generally agreed, within and without OCR, that administra- 
tion of the higher education program in its first years suffered from a 
number of defects. As the figures given above suggest, the agency has 
had difficulty in achieving satisfactory and prompt resolution of com- 
plaints. It also appears that in some cases complaints were lost or files 
mislaid (hence, agency statistics on complaints are not entirely reliable). 
Nevertheless , a great deal of time has gone into this activity; according to 
estimates supplied by the branch officers to the Washington office of the 
Higher Education Division in January, 1973, individual complaints re- 
quired an average of 27.2 man days per complaint. Also revealing is the 
variation reported among the branches; the estimates of man days re- 
quired per complaint ranged from ten to fifty man days, suggesting that 
the regions held contrasting views on what constitutes a proper investi- 
gation.'*' The compliance review process seems also to have been more 
burdensome to institutions than it was effective in securing compliance. 
Thus, many reviews have been conducted but only a relatively few plans 
have won approval and, of these, only a small handful are currently 
regarded as actually satisfactory. Meanwhile, institutions have supplied 
a great deal of data, and in some areas have been put to much trouble and 
expense, without any clear resolution of their compliance status having 
been achieved. Branch office representatives have not always appeared 
capable of analyzing properly the information they have received, and 
seem also to have lacked a common understanding of the compliance 
review process and of the standards to be applied to affirmative action 
programs. Complaints of universities on this last point seem to receive 
some confirmation from the information given in the table below, showing 
action on affirmative action programs by region for the period November 
16, 1971, through November 31, 1972, and the regions' estimates, given 
in January, 1973, of man days required for a compliance review. 



•" According to information supplied by OCR the regional offices made the following estimates of mandays required 
per complaint: 

I 30 VI 15 

II 50 VII 50 

III — VIII 15 

IV 10 IX 30 

V 30 X 15 



AFFIRMATIVE ACTION 161 

AAP desk AAP field 





AAPs 


approved 


AAPs 


AAPs 


audits 


review r 




interim or 


final 


rejected 


pending 


man days 


days 


I 




1 







15 


30 


110 


II 




1 




13 


17 


8 


50 


III 




1 







3 


— 


— 


IV 









6 


6 


5 


40 


V 












24 


15 


30 


VI 




11 




5 


9 


10 


15 


VII 









11 





10 


27 


VIII 




8 




5 


21 


10 


40 


IX 




7 




8 


17 


20 


20 


X 




1 




3 


4 


15 


60 



Thus, Regions II and VII collectively rejected twenty-four plans and 
approved only one while Regions VI, VIII and IX approved twenty-six 
plans and rejected eighteen. The region approving the highest number of 
plans (VI) required the least time to perform a compliance review — 
twenty-five man days, while the regions with the most adverse ratio of 
rejected to approved plans (II, VII) required fifty-eight and thirty-seven 
days, respectively, to complete a review. 

At least some of the problems encountered in the administration of the 
program appear to be in the process of solution owing to the leadership 
provided by the current director of the Higher Education Division. Thus, 
the Division appears to be compiling more detailed and informative 
records, gaining more sensitivity to the unique characteristics of higher 
education and providing the branch offices more guidance and supervi- 
sion and the compliance program as a whole may show a firmer sense of 
management. Certain difficulties remain, however. 

The Division staff lacks experience with higher education. OCR has 
claimed fourteen employees have been connected with institutions of 
higher education in faculty, consultative and administrative positions, 
but there is good reason to believe that this number, though small, is 
inflated. There is one Ph.D. on the Division staff (the Director) and a 
small number of employees with Master's or law degrees. As of March 1, 
1974, thirty-five positions were vacant owing to difficulty in recruiting 
persons with experience in higher education. Training within OCR has 
been limited. A three and one-half day seminar was given in Fall, 1972 
and a three day seminar (for OCR personnel generally) in Winter, 1972 
and Spring, 1973. A program concerned with affirmative action standards 
was given for senior branch office employees from August 20 to 24, 1973. 
New employees since February, 1973, are supposed to undergo a three 
month training and orientation program under the regional office branch 
chiefs. This includes "introductions, briefings, and seminars with local 
college administrators and equal opportunity officials, women's campus 
groups, officials in related Federal programs (e.g., OE, EEOC, and 



162 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

OFCC), etc.," together with "an overall orientation of compliance pro- 
grams administrated by the Office for Civil Rights." '^^ 

The Division's jurisdiction is vast and ill-defined. There are about 2,400 
institutions of higher education in the United States, employing slightly 
over 250,000 full-time faculty members (and, of course, many more part- 
time faculty, nonteaching academic employees and nonacademic staff). 
How many of these institutions are federal contractors is unknown, but 
one estimate, from the Higher Education Division, places it at about 
1,100. How much federal money reaches these institutions through gov- 
ernment contracts also appears to be unknown although, for some institu- 
tions government contracts undoubtedly provide an important source of 
funding. The total amount and its distribution, whatever they may be, 
would considerably understate OCR's purchase on higher education. At 
least with respect to sex discrimination in employment, Title IX, forbid- 
ding sex discrimination in federally assisted educational programs and 
activities, provides an additional instrument of regulation. HEW also 
holds the view, a debatable one, that Title VI of the 1964 Civil Rights Act, 
which prohibits discrimination on grounds of race, color or national origin 
in programs receiving federal financial assistance, may apply to employ- 
ment practices.*^ However, the Executive Order and Title VI and Title 
IX provide different criteria of administration (discussed below), so that 
these programs cannot easily be treated as a single integrated program. 
Passage of Title IX, together with HEW's interpretation of Title VI, both 
enlarge and complicate OCR's mandate in higher education. From the 
perspective of individual institutions, OCR must seem to resemble Gul- 
liver in Lilliput, but OCR must feel that the more appropriate analogy is 
to Gulhver in Brobdignag. The agency lacks the staff and resources to 
fulfill its charter; it has failed to keep its complaint docket current, and it 
cannot perform compliance reviews in anything approaching the number 
or frequency OFCC regulations require. Many contracts of $1,000,000 or 
more have been awarded without a pre-award review, and it seems safe 
to say that a large number of higher education contractors have never 
been through a compliance review. 

OFCC regulations rather impede than facilitate the administration of a 
compliance program in higher education. The very problematic applica- 
tion of these regulations receives extensive discussion below. Here, it 
may be sufficient to give one example of their lack of fit to higher educa- 
tion. Order No. 14 directs completion of compliance reviews in ninety 
days, from the compliance agency's request to the contractor for his af- 



"* Letter from Gwendolyn H. Gregory, Director, Office of Policy Communication, Office for Civil Rights, HEW, to 
Sheldon E. Steinbach, American Council on Education, dated September 17, 1973. 

"» Title VI of the Civil Rights Act of 1964, 42 U.S.C. §2000d, seems not to apply to employment practices "except 
where a primary objective of the Federal fmancial assistance is to provide employment." Id. at § 604, 42 U.S.C. §2000d^. 
However, HEW takes the position that where employment discrimination produces effects prohibited by Title VI 
employment practices come within the statute. See 45 C.F.R. § 80.3(c)(3). 



AFFIRMATIVE ACTION 163 

firmative action program to the agency determination of compliance 
status. OCR regards this schedule as hopelessly unrealistic, and it is 
clearly true that its reviews have regularly consumed a great deal more 
time than ninety days. The affirmative action program of Harvard Uni- 
versity, approved in November, 1973, was reportedly the product of two 
years of negotiations, for example. At the same time that OCR adminis- 
ters an inappropriate set of regulations it also must coordinate the con- 
tract compliance program with other programs and other agencies. For 
some time, the Executive Order was the only federal regulation directed 
at employment discrimination in higher education (with the possible 
exception of Title VI of the 1964 Civil Rights Act, which seems to have 
had little or no practical significance for employment practices in higher 
education). The Order has now been joined by Titles VII and IX of the 
Civil Rights Act of 1964 and the Equal Pay Act, and OCR finds itself in 
uneasy alliance with the Wage and Hour Administration and EEOC. 
Whether or not there are too many cooks is not yet clear, but there are 
plainly enough to get in one another's way. 

Federal Antidiscrimination Regulation 
OF Higher Education 

For a number of years the Executive Order was the only federal 
regulation of any significance covering discrimination among higher edu- 
cation faculty (and the Order, of course, applied only to institutions with 
government contracts). Title VII of the CivU Rights Act of 1964 did not 
extend to institutions of higher education or to agencies of state and local 
government.^ HEW has interpreted the Title VI (of the 1964 Civil Rights 
Act) prohibition on racial or national origin discrimination in federally 
assisted programs as applicable in some circumstances to employment 
(although the Act states that it covers employment only when the pur- 
pose of the assistance is to provide employment), ^ but this administrative 
construction of the statute seems not to have had any importance in 
enforcement. The Equal Pay Act, forbidding sex discrimination in pay, 
excluded administrative, executive and professional employees. ^ The 
discovery that the Reconstruction Civil Rights Acts (42 U.S.C. §§ 1981, 
1983) might reach employment discrimination did not come until the late 
1960's.'» 



' Section 702 of Title VII (78 Stat, at 255 (1964) provided that "this title shall not apply with respect to ... an 
educational institution with respect to the employment of individuals to perform work connected with the educational 
activities of such institution." 

2 See, however, 45 C. F.R. § 80.3(c)(3); "The Executive Order Program — Administration in Higher Education" n. 49. 

' Section 6(d)(l)ofthe Fair Labor Standards Act forbids sex discrimination in pay. Untilthepassageof P.L. 92-318, 86 
Stat. 373 (1972) effective June 23, 1972, section 13(a)(1) excluded persons employed in a professional, administrative or 
executive capacity from section 6. 

* See Larson, The Development of Section 19X1 an a Remedy for Racial Discrimination in Private Employ- 
ment, 7 HARV. CIV. RIGHTS-CIV. LIB. L. REV. 56(1972);Brarfen v. University of Pittsburgh. 477 F.2d 1 (3d Cir. 
1972). 



164 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

The situation is now very much changed. The Equal Employment 
Opportunity Act of 1972 extended Title VII to take in higher education 
and state and local governments. ^ The same statute added Title IX to the 
Civil Rights Act with the effect of prohibiting sex discrimination in 
federally assisted programs (unlike Title VI, the new provision includes 
discrimination in employment).^ We are now learning that discrimina- 
tion in employment on grounds of race violates 42 U.S.C. § 1981 and that 
race or sex discrimination by a state agency may violate 42 U.S.C. § 
1983.^^ In 1972 the exemption from the Equal Pay Act for administrative, 
executive and professional employees was eliminated. Higher education 
faculty now fall within an area covered by a number of overlapping but 
only partially consistent antidiscrimination measures. 

Along with this development has come a multiplication of enforcement 
processes and of forums in which questions of discrimination may be 
pursued. When the Executive Order was the sole measure applicable to 
higher education institutions (those which were federal contractors) their 
employment practices were subject to the HEW compliance review proc- 
ess, and individuals could file complaints with HEW, thereby triggering 
the cancellation, termination and debarment process. It would appear 
also that the Justice Department could sue to enforce the contract, 
seeking an order compelling conformance with the equal employment 
opportunity clause.'' Now that Title VII covers higher education an 
individual can file a complaint with the Equal Employment Opportunity 
Commission and then bring an action in federal court. A case of this kind 
may of course be brought as a class action. At the same time that the 
higher education exclusion was dropped. Congress gave EEOC the 
power to sue, so that the agency becomes a potential plaintiff in addition 
to the individual complainant. Increasingly, sections 1981 and 1983 of 
Title 42 are becoming established as alternative vehicles for individual 
and class actions raising issues of discrimination, 1981 with respect to 
discrimination against blacks, 1983 with respect to race and sex discrimi- 
nation by state agencies. As a result of the recent extension of the Equal 
Pay Act to administrative, executive and professional employees, ques- 
tions of sex discrimination in compensation among higher education fac- 
ulty ai'e open to investigation by the Wage and Hour Administrator of the 
Labor Department, on his own initiative or in response to a complaint. 
Either the Secretary of Labor or individual employees may sue to redress 



^ Public Law No. 92-2()l * 2. .^(i Stat. 103 (1972) ameiuled -12 U.S.C. >; 2000e-l to remove the e.xemption for educational 
institutions. 

« 20 U.S.C. 5 1681 <•/ .>!«'(/.. 86 Stat. 373 (1972). 

*' With respect to § 1981. see Larson, The Deielo/jiiieiit of Section I9SI ax a Reniedij tor Racial Piscriiiiina- 
tio„ inl'rirateEwplonmcit. 7 HARV. CIV. RIGHTS-CIV. LIB. L. REV. 56(1972): on U983 see, csr..S/»i7/( r.Cifi/ 
ot Enxf Clerelniid. 363 F. Supp. 1131 (N.D. Ohio 1973): Cohen r. Miami. 54 FRD 274 (S.D. Fla. 1972). 

' Section 209(a)(2) of Exec. Order No. 11246 authorizes the Secretary of Labor to recommend to the Justice 
Department that proceedings be brought to enforce the equal employment opportunity clause. 



AFFIRMATIVE ACTION 165 

claimed violations of the Act.^ The prevailing view has been that the 
Executive Order gives no basis to private parties for suit against contrac- 
tors for alleged violation of the Order or its implementing regulations.^ 
However, the law may now be shifting toward recognition of private 
actions based on the Order. ^^ Title IX gives federal departments and 
agencies providing financial assistance a basis independent of the Execu- 
tive Order for promulgating regulations dealing with sex discrimination 
in higher education; HEW, which provides much of the government's 
assistance to higher education, may become simultaneously the agent of 
the Labor Department in carrying out the contract compliance program 
on behalf of minority groups and women and the principal in its own 
program, in aid of women, setting conditions to any form of federal 
financial assistance. Title IX, however, merely forbids discrimination; 
unlike the Executive Order, it does not demand affirmative action. 
HEW's proposed Title IX regulations provide for affirmative action only 
as a remedy when discrimination has been established." In this respect 
the proposed regulations resemble court decisions under Title VII in 
which quotas or hiring ratios have been imposed to remedy proven 
discrimination. Title IX also differs from the Executive Order in that the 
latter applies to all facilities of a contractor, including facilities not in- 
volved in performance of any federal contract, while under the former 
assistance may be denied or terminated only as to a "particular political 
entity or part thereof or other recipient" found out of compliance, "limited 
in its effect to the particular program, or part thereof " in which non- 
compliance is established.^^ While over-all supervision of the Executive 
Order program is centralized in the Labor Department, Title IX divides 
authority among all agencies providing financial assistance to higher 
education. HEW thus is not the only agency with responsibility under 
Title IX, and institutions receiving assistance from more than one federal 
source will find themselves coming under the jurisdiction of a number of 
agencies. It may be the case that the various agencies responsible for 
administration of the Executive Order and Title IX are subject to private 
actions seeking to require the agencies to conform to their own regula- 



" FLSA<) 16(b), 17 29 U.S.C. <i<( 216(b), 217. Under section 16(b) employees may bring class action for damages, but 
"no employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and 
such consent is filed in the court in which such action is brought." 

» See Farkun r. Texan I iistniineiits. Inc., 375 F.2d 629 (5th Cir.), cert, denied, 389 U.S. 977 (1967); Fanner v. 
I'hiladelphia Elec. Co.. 329 F.2d 3 (3d Cir. 1964). 

'» SeeLewiH v. Western Airlines, Inc., 8 FEP Cases 373 (N.D. Cal. 1974). In Lau v. Nichols, 94 S.Ct. 786(1974), the 
Supreme Court entertained on the merits an action brought by private plaintiffs claiming violation of HEW regulations 
issued pursuant to Title VI and incorporated in funding contracts between HEW and the defendant school district, a 
recipient of federal financial assistance. As Justice Stewart's concurring opinion points out, the defendants did not contest 
the standing of the plaintiffs to sue as beneficiaries of the contract (94 S.Ct. at 790 n. 2). Nevertheless, the decision may 
suggest that the Court is sympathetic to private enforcement of equal employment provisions in government contracts. 

" See HEW, "Education Programs and Activities Receiving or Benefiting from Federal Financial Assist- 
ance, Xon-disci-imination on the Basis of Sex," 8 86.3(a), 39 Fed. Reg. 22227. 22233 (19741 

" 20 U.S.C. !( 1682, S 6 Stat. 374 (1972). 



166 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

tions, the Order or one or another statute. ^^ To the extent this occurs, the 
agencies are forced to share authority for the formulation and administra- 
tion of poHcy with the federal courts, and regulated employers cannot 
rely with entire confidence on agency interpretations. 

A single university may find itself in the following position. As a federal 
contractor it is obliged to refrain from discrimination on grounds of race, 
color, religion, sex and national origin and to take affirmative action to 
insure equal employment opportunity without regard to race, color, 
religion, sex or national origin. Its employment practices are subject to 
investigation by HEW as the compliance agency designated by the De- 
partment of Labor. Failure to conform to the requirements of the Execu- 
tive Order program expose it to cancellation or termination of contracts 
and debarment as a federal contractor, and it may be sued by the De- 
partment of Justice in an action to enforce the equal employment oppor- 
tunity clause. Conceivably, individuals who claim to have been injured by 
violations of the nondiscrimination or the affirmative action standards of 
the program may also sue as a kind of third party beneficiary of the equal 
employment opportunity clause. As an employer subject to Title VII the 
university may be sued by persons who have filed charges with the 
EEOC claiming discrimination in employment on grounds of race, color, 
religion, sex or national origin. Such cases may be prosecuted by a single 
person attacking a particular event — e.g., termination — or as a class 
action on behalf of a large number of "similarly situated" persons in which 
very extensive and detailed judicial regulation of employment practices is 
sought. The same range of issues may arise in suits brought by the EEOC 
in response to a complaint. It seems clear that blacks who wish to avoid 
certain procedural requirements of Title VII can by-pass the EEOC and 
sue directly under section 1981 of Title 42. If the university is a state 
agency, members of other groups may be able to make parallel use of 
section 1983. Since the university receives various forms of federal finan- 
cial assistance, it is obliged under Title IX of the Civil Rights Act to 
conform to whatever regulations HEW and other agencies may eventu- 
ally issue to implement the statute's prohibition of sex discrimination in 
federally assisted programs. The same may be true of alleged employ- 
ment discrimination on grounds of race, color or national origin under 
Title VI of the Civil Rights Act of 1964. If violations of the regulations are 
shown in an administrative hearing, the agency conducting the proceed- 
ing may require affirmative action or terminate or deny assistance. 
HE W's proposed regulations provide for individual complaints, and, here 
too, it is possible that individuals may be able to sue directly on the 
regulations. Finally, the university may find itself involved in disputes 



" XnAda ms v. Richardson, 480 F.2d the Court of Appeals for the District of Columbia Circuit held, en banc, that 
private plaintiffs could sue for an injunction requiring HEW to carry out the provisions of Title VI of the Civil Rights Act of 
1964 by commencing proceedings to terminate federal financial assistance to segregated systems of education. See also, 
Legal Aid Society of Alameda County v. Brennan, F.Supp. (N.D. Cal. 1974). 



AFFIRMATIVE ACTION 167 

with the Wage and Hour Administrator or with individual employees 
over issues of compensation arising under the Equal Pay Act. Of course, 
many questions are common to more than one source of regulation. Thus, 
a claim of sex discrimination in pay could be raised under the Equal Pay 
Act, Title VII, Title IX or the Executive Order. At the same time, the 
same question can be posed differently depending upon the regulatory 
context in which it arises. Thus, one agency might conclude that a 
particular action was not "discriminatory" under Title IX while HEW 
might decide that the same action fell short of a commitment to "affirma- 
tive action." 

There may be something to be said for this proliferation of antidis- 
crimination measures and enforcement mechanisms. It sets many guar- 
dians on employers and guarantees complainants a forum in which to 
press their claims. The inevitable collision of philosophies and the compe- 
tition among divergent procedures may help clarify the goals of antidis- 
crimination policy and contribute to developing suitable methods of 
achieving them. But there are also costs which make the present, con- 
fused situation appear very doubtfully desirable. 

These costs are of several kinds: (1) one proceeding conducted by one 
agency may duplicate another proceeding undertaken by another agency; 
(2) one agency may establish standards which conflict with standards 
developed by another agency; (3) different agencies may follow inconsist- 
ent interpretations of the same standards; (4) there is only limited 
assurance that a resolution achieved with one agency will be accepted by 
other agencies. 

(1) EEOC investigations of Title VII complaints, agency investiga- 
tions of Title IX complaints, HEW compliance reviews — whether under 
Title IX or the Executive Order — and investigations of the Wage and 
Hour Administrator all may cover some of the same ground. Unless the 
agencies standardize their investigatory procedures as much as possible, 
particularly their demands for information, multiple inquiries into the 
same events, employment patterns or personnel practices will prove 
needlessly burdensome to institutions and to the agencies themselves. 
For example, individuals sometimes file with OCR so-called class com- 
plaints on behalf of the complainant and all others similarly situated. 
After institutions of higher education came under Title VII and until 
recently, OCR's practice has been to refer the individual aspect of the 
case to EEOC and retain the "class" element of the charge for investiga- 
tion by the appropriate field office. EEOC's demands for information 
can be very wide-ranging. Indeed, an exploration of a question of dis- 
crimination in an individual instance may requu*e comparison among 
many similar cases, so that EEOC in effect may conduct much the same 
investigations as will OCR {or vice versa). If each agency fails to coordi- 
nate its approach with the other, they may repeat interviews with the 



168 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

same people, demand information bearing on similar concerns but in dif- 
ferent form and otherwise waste their own and others' resources. The 
practical difficulties of distinguishing class complaints from individual 
complaints has led OCR to reexamine its practice in this regard, but no 
clear solution has emerged. 

(2) Different agencies may fall into conflict on the same issue. This 
possibility has been realized perhaps most dramatically in the case of 
insurance and pension and retirement plans, but questions of maternity 
benefit policy and testing standards supply additional examples. 

All the agencies are concerned to prevent discrimination. It follows 
that men and women should receive equal treatment under insurance and 
pension and retirement plans. What has remained obscure is what treat- 
ment is equal. Because the costs of medical insurance (excluding preg- 
nancy and pregnancy-connected disabilities) and retirement benefits 
apparently tend to run higher for women than for men, it is open to 
argument whether equal contributions by the employer or equal benefits 
to employees yields equality of treatment. Originally, the OFCC Sex 
Discrimination Guidelines accepted either equal contributions or equal 
benefits. ^'* So did EEOC, in giving its interpretation of Title VII, and the 
Wage and Hour Administrator, in furnishing his interpretation of the 
Equal Pay Act.^^ EEOC has changed its view, and now takes the position 
that only equal benefits will satisfy Title VII. ^^ OFCC has issued a 
proposed revision of the Sex Discrimination Guidelines which avoids 
commitment to either position, merely setting out both as alternatives 
without presently choosing between them.^''' The Wage and Hour Admin- 
istration (like OFCC, an agency of the Labor Department) stands on its 
original position. HE W's proposed regulations under Title IX follow the 
Wage and Hour Administration.^® Fortunately, perhaps, the meaning of 
"discrimination" in this context is open to litigation under Title VII, and 
the courts may ultimately resolve the question. ^^ 

The agencies appear to be arriving at a common view on maternity 
benefit policy, but only after a period of disagreement resembling the 
impasse over retirement benefits. OFCC's current version of the Sex 
Discrimination Guidelines obliges a contractor to extend maternity leave 
on the same terms (except one) that leave is given for other purposes 
under his existing leave policy. The exception has to do with length; 
maternity leave must be granted for a "reasonable" time. If the contrac- 
tor has no leave policy, the regulation compels him to grant reasonable 



••' 35 Fed. Reg. 8888 (1970). 

'* This histor>' is reviewed at 38 Fed. Reg. 35337(1973). For the Labor Department's view, see 29 C. F. R. S 800. 116(d) 
(1973) (Interpretive Bulletin on Equal Pay Act). 
'«29C.F.R. S 1604.9(1973). 
" 38 Fed. Reg. 35336 at 35338 (Dec. 27, 1973). 
"• See 39 Fed. Reg. at 22237. § 86.46(bX2) (1974). 
'^Ct. Rosen r. PiibUc Sec. Etec. <$- Gas. Co., 477 F.2d 90 (3d Cir. 1973). 



AFFIRMATIVE ACTION 169 

maternity leave and reinstatement to the same or equivalent employ- 
ment.^" These requirements are less rigorous than the demands of Title 
VII as interpreted in EEOC's Sex Discrimination Guidelines. ^^ How- 
ever, if OFCC adopts the proposed revision of its Sex Discrimination 
Guidelines the two agencies will come into congruent positions. In the 
OFCC's language, "medically verifiable disabilities caused or contributed 
to by pregnancy, miscarriage, abortion, childbirth, and recovery there- 
from are [,1 for all job-related purposes, temporary disabilities and shall 
be treated as such under any health or temporary disability insurance 
policies or sick leave plans available in connection with employment." 
Matters such as "the commencement and duration of leave, the availabil- 
ity of extensions, the accrual of seniority and other benefits and 
privileges, reinstatement, and payment under any health or temporary 
disability insurance policies or sick leave plans" are to be dealt with on the 
same terms as "other temporary disabilities." However, if employees 
suffer termination because no leave or "insufficient" leave is available, 
the employer may be guilty of discrimination. This consequence follows if 
his policy follows with "disparate effect" on one sex, and he lacks justifica- 
tion in "business necessity." ^^ The Wage and Hour Administrator takes 
no position on maternity benefits, holding to the view that they are not 
compensation for purposes of the Equal Pay Act.^^ The proposed regula- 
tions drafted by HEW under Title IX track the EEOC interpretation of 
Title VII and OFCC's proposed construction of the Executive Order." 
Again, litigation under Title VII may give the courts the last word. 

EEOC and OFCC have issued guidelines on testing and other em- 
ployee selection procedures. ^^ These are generally consistent with each 
other but probably inconsistent with Civil Service Commission practices 
in federal government employment. When the Federal Service Entrance 
Examination, developed and administered by the Civil Service Commis- 
sion, was attacked in litigation as discriminatory against blacks, EEOC, 
as amicus curiae, asserted a position adverse to the Civil Service 
Commission. 26 (The plaintiffs' motion for preliminary injunction was 
denied and the case remanded to the Civil Service Commission for 
exhaustion of administrative remedies instituted after the action was 
filed.) An effect of this incident was to furnish a demonstration that one 
agency of government held a view of antidiscrimination policy sharply at 
variance with the conceptions of personnel selection followed by another 
agency with responsibility for administering the federal civil service. 
More recently, the Equal Employment Opportunity Coordinating Coun- 



" 41 C.F.R. § 60-20. 3(g)( 1973). 

*' 29 C.F.R. « 1604.10(1973). 

« 38 Fed. Reg. 35337 (1973) (§ 60-20.3(h)). 

"29 C.F.R. §800.110(1973). 

" 39 Fed. Reg. at 22237 § 86.47(bK1974). 

"29 C.F.R. 1607(1973KEEOC);41 C.F.R. 60-3 (1973)(OFCC). 

" The case is Douglas v. Hampton, 4 FEP 382 (D.D.C. 1972). 



170 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

cil, a group of agency representatives including EEOC and CSC, has 
collaborated on a set of uniform guidelines for testing and employee 
selection. Successive drafts of these guidelines have been circulating for 
many months but have not yet taken definitive form. HEW's draft regu- 
lations under Title IX seem to resemble OFCC and EEOC guidelines but 
are far less detailed. Questions of testing and employee selection are 
frequently raised in Title VII litigation; a number of courts have endorsed 
various aspects of the EEOC Guidelines, but some difficult problems 
remain unresolved. ^"^ 

(3) Different agencies do not seem to share the same understanding of 
common techniques or strategies which they all employ. The proper use 
of "goals and timetables" illustrates this problem. "Goals" refers to pro- 
jected proportions of minority and female employment in certain occupa- 
tions or jobs utilized by an employer. "Timetables" are the periods of time 
in which the goals are expected to be reached. For example, a goal and 
timetable might predict that black employment in a certain job would 
expand from its current level of 2% in increments of 2% per year for five 
years, arriving at a total of 12% of employment in the job in five years' 
time.^^ Goals and timetables are a standard feature of affirmative action 
programs required by OFCC and its compliance agencies under the 
Executive Order. EEOC and the Justice Department have secured goals 
and timetables in negotiating settlements with employers in Title VII 
cases, and the courts have imposed them in some litigated cases as a rem- 
edy for past discrimination. The Civil Service Commission may also 
become involved with goals and timetables in seeking to prevent discrimi- 
nation in federal personnel programs. A survey of federal officials from 
these agencies and the Commission on Civil Rights in September, 1973, 
appeared to disclose differences of emphasis and perhaps of underlying 
conceptions, as well as a certain vagueness, in appraising the device of 
goals and timetables. ^^ For the Civil Service Commission, goals and time- 
tables seemed to serve as a tool for measuring an employer's progress in 
administering a system of employment based on "merit." In varying de- 
grees other agencies appeared to regard goals and timetables as some- 
thing approaching a commitment to produce increased minority and 



" In Griggs v. Duke PoiverCo., 401 U.S. 424 (1971), the Supreme Court endorsed generally the EEOC interpreta- 
tion of Title VII as requiring that tests used for employee selection purposes be job related. How to interpret and apply 
this requirement remains problematic, as a number of cases illustrate. See, e.g., Allen v. City of Mobile, 466 F.2d 122 
(5th Cir. 1972), Spurlock v. United Airlines. 475 F.2d 216 (10th Cir. 1972). 

" Examples of goals and timetables, and of a process of calculating them, may be found in the OFCC "imposed" plans 
in the construction industry. See, e.g., 41 C.F.R. 60-5 (1973) (the Washington Plan). 

" See Malbin, \'on-Di8Criminatory Hiring, 5 NAT'L J. REPS. 1400 (1973). 



AFFIRMATIVE ACTION 171 

female employment.^" Differences of degree and emphasis on the length 
of timetables and the size of goals, also revealed in the comments of 
agency officials, seem to reflect tension between a view of antidiscrimi- 
nation action as a process designed to afford equal employment oppor- 
tunity presently and in the future and a conception of antidiscrimination 
programs as a means of rapidly achieving the same pattern of outcomes 
as would have been obtained had there been no discrimination in the past. 
If past discrimination in society generally has had the effect of reducing 
the present qualifications, at least for some occupations, of minority 
groups and women, the latter view seems more likely to result in discrimi- 
nation against whites and males than the former. It is not surprising, 
therefore, that agencies with a more result-oriented conception of af- 
firmative action tended more to favor explicit consideration of race and 
sex in choosing among "equal" applicants and employees.^* It is also note- 
worthy that four agencies — the Justice Department, the Labor Depart- 
ment, EEOC and the Civil Service Commission — had arrived at a com- 
mon, written position on the use of goals and timetables in March, 1973. 
That document included the following passage: 

Under a system of goals, therefore, an employer is never required to hire a person 
who does not have qualifications needed to perform the job successfully; and an 
employer is never required to hire such unqualified person in preference to another 
applicant who is qualified; nor is an employer required to hire a less qualified person in 
preference to a better qualified person, provided that the qualifications used to make 
such relative judgments realistically measure the job in question, or other jobs to 



3" A representative ofthe Civil Service Commission saifl, ". . . goals are not the be-all and end-all of affirmative action. 
In fact, they are not affirmative action at all, but are merely the means of encouraging affirmative action" and that, "a 
selecting official should have some flexibility in hiring, but he may not use race or sex as a criterion in making his final 
selection. " Id. at 1404. A Justice Department spokesman said, "You have a mix of |)eople who were actually discriminated 
against and you have a mix of people who were not but who, by conditions of their race and sex have historically been 
discriminated against. . . . Since you can't historically turn the clock back to know which are which, the judge takes some of 
the first group and adds a presumption that there are additional persons in the second group, and sets a goal. " Id. at 1408. 
The Director of OFCC stated that as between two roughly equal candidates, " ' I would encourage the contractor to give 
the minority applicant every consideration,' rather than let the decision be made by lot."/6/f/. Another official of OKCC 
said that "before Order No. 4 it was a matter of looking at techniques. Now we look at resulU" and stated also, "it's a simple 
fact that there has been discrimination in the past. Our purpose is to achieve a degree of utilization which would have 
existed had discrimination not occurred. The mere fact that a contractor is hiring in rough proportion to availability does 
not mean that the contractor is in compliance. It depends on the seriousness of the deficiency. You would expect the goals 
in many cases to be higher than the current availability in order to remedy past deficiencies." Ibid. The Civil Rights 
Commission has issued a statement which takes the view that, "An affirmative action plan must require some action that 
has not heretofore taken place, otherwise it is useless. . . . One ofthe requirements therefore is that in the subjective 
evaluations that always occur in the selection process one factor previously excluded should now be included — a concern 
that a reasonable number of qualified minorities and women be hired until equity is attained." Id. at 1409. 

3' Compare a statement by a CSC representative — "I personally don't believe minorities can exi)ect to catch up in the 
employment situation until they also catch up in other areas which affect their employability, such as education and past 
employment service . A lot of elements in society have to come along. This has to be looked at in a total context. It has been 
happening. Blacks, for example, have been increasing their college enrollment. More and more women are going mto 
occupational areas formerly considered male. Things are changing, but it is a gradual process. I don't see any overnight 
changes in the employment picture. A lot of people are looking for shortcuts, but shortcuts won't work. If you short-cut the 
ideaofgoalstoomuch, leaving out the backup, they become quotas.". Wo/hi»,n. 30, .•(»;))■(( at 1405 — with the Civil Rights 

Commission sUtement — "The best test for determining whether these aims are being achieved is by a results test. 
Whether expressed in terms of application, hires or promotions, the results test is the best test of whether women and 
minorities in fact are achieving the equal employment opportunities required pursuant to the twin aims of affirmative 
action." Id. at 1409. 



172 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

which he is likely to progress. The terms "less qualified" and "better qualified" as used 
in this memorandum are not intended to distinguish among persons who are substan- 
tially equally qualified in terms of being able to perform the job successfully. Unlike 
quotas, therefore, which may call for a preference for the unqualified over the 
qualified, or of the less qualified over the better qualified to meet the numerical 
requirement, a goal recognizes that persons are to be judged on individual ability, and 
therefore is consistent with the principles of merit hiring. ^^ 

These statements may appear categorical; in practice they turn out to be 
ambiguous. Without a fairly precise understanding of such critical terms 
as "qualifications," "realistic measures" and "equal" qualifications dif- 
ferent persons can agree on this formulation while holding quite diver- 
gent views on the size of pools of qualified labor, what proportion of those 
qualified are equal and how quickly minority and female employment can 
be increased without reverse discrimination. It is by no means apparent 
that a common understanding of such questions has emerged. ^^ 

(4) Given the present situation of overlapping jurisdiction, inconsist- 
ent standards and diverging interpretations of policy, an institution of 
higher education cannot be confident that conformity to one agency's 
views of its obligations will satisfy other agencies. This is most clearly 
evident in the case of retirement benefits. In this instance a university 
can comply with all relevant agency interpretations of the law only by 
adopting an equal benefits formula. The courts may, of course, ultimately 
hold that this position is correct. On the other hand, they may not. 
Meanwhile, there is at the least a certain anomaly in a state of affairs 
under which a university must abandon a position one agency considers in 
compliance with law to take a different position another agency of the 
same government regards as legally required. The very vague character 
of dominant concepts — "discrimination," "goals and timetables," "qual- 
ified," etc. — referred to above and discussed more fully below, leads to 
less obvious conflicts in the approaches different agencies bring to admin- 
istration of equal employment opportunity in higher education. Conflicts 
of this kind may surface on occasion, as in a celebrated case involving the 
Bogalusa, Louisiana, plant of Crown Zellerbach Corporation.^^ There, 
EEOC approved an alteration in the seniority system to redress the 
effects of past discrimination. This was overturned by OFCC, which 
imposed a new arrangement. The OFCC solution in its turn was attacked 
(successfully) by the Justice Department in litigation under Title VII. 
More commonly, discrepancies of view may remain concealed in the low 
visibility workings of administrative processes in which multiple agencies 



^' "Menioranflum for U.S. Attorneys, Field Representatives of the Ci\'il Service Commission, Field Representatives 
ufthe Equal Employment Opportunities Commission, Field RepresentativesoftheOfficeof Federal Contract Compliance 
— Subject: Federal Policy on Remedies Concerning Equal Employment Opportunities in State and Local Government 
Personnel Systems" (Mar. 23, 1973) a-4. 

" See n. 30, 31. snijia. 

" Local IS9. r,iiteH Paiieniiakers <<• rnperworkeiK, AFL-CIO v. United States. 416 F.2d 980 (5th Cir. 1959), 
cert, denied. 397 U.S. 919 (1970). 



AFFIRMATIVE ACTION 173 

settle the conditions of eligibility for grants and contracts and attempt 
resolution of complaints of discrimination. 

There presently exists machinery for coordinating the work of agencies 
active in the antidiscrimination field. This equipment, however, does not 
yet appear to be in good working order. The Equal Employment Oppor- 
tunity Act of 1972 added section 715 to Title VII of the Civil Rights Act to 
create an Equal Employment Opportunity Council, composed of repre- 
sentatives of the Labor Department, the Justice Department, EEOC, 
the Civil Service Commission and the Civil Rights Commission. ^^ The 
Council has "responsibility for developing and implementing 
agreements, policies and practices designed to maximize effort, promote 
efficiency, and eliminate conflict, competition, duplication and inconsist- 
ency among the operations, functions and jurisdictions of the various 
departments, agencies and branches of the Federal Government respon- 
sible for the implementation and enforcement of equal employment op- 
portunity legislation, orders and policies." The principal achievement of 
the Council to date seems to be a set of draft guidelines on employee 
selection procedures. The Council deserves a great deal of credit for 
addressing what is probably the most crucial and difficult problem for 
antidiscrimination policy. On the other side, the Council has to be faulted 
for its failure to deal with the problem effectively. The Council's members 
have not agreed on a document they are prepared to publish, and the 
draft they have produced perpetuates some of the more notable in- 
adequacies of the existing guidelines adopted by OFCC and EEOC. The 
four agency agreement on goals and timetables represents another 
praiseworthy, though only ambiguously successful, effort to achieve 
consistent interpretation of policy. There is also a section of the OFCC 
Sex Discrimination Guidelines providing: 

To avoid overlapping and conflicting administration the Director will consult with the 
Administrator of the Wage and Hour Administration before issuing an opinion on any 
matter covered by both the Equal Pay Act and Executive Order 11246, as amended by 
Executive Order 11375.36 

The undertaking to consult, however, clearly does not insure agreement, 
as evidenced by OFCC's willingness to consider a position in conflict with 
that of the Wage and Hour Administrator on retirement plans. The 
efforts at coordination made so far lead in the right direction. They 
remain piecemeal approaches to one or another problematic feature of 
antidiscrimination policy and fail to reflect a comprehensive view of what 
that policy ought to be. The Executive branch seems to lack capacity to 
formulate a clear conception of policy and to secure obedience to it on the 
part of the responsible agencies. 



" 42 U.S.C. § 2000e-14, 86 SUt. Ill (1972). 
'« 41 C.F.R. § 60-2.5(cK1973). 



174 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

In many ways, despair seems the most appropriate response to the 
present state of affairs. In varying degrees, a number of agencies of the 
executive branch, the legislature and the courts have contributed to the 
tangle of overlapping jurisdictions, remedies and substantive standards 
which now exists. In all probability, it will never be entirely pulled apart 
and rationalized. It does not seem too much to ask, however, that at least 
the agencies of the executive branch concerned with equal employment 
opportunity should get out of each other's way, whether by deferring to 
some one agency on questions unique to a particular field, such as higher 
education, or by coming to a shared understanding on issues of common 
importance to all of them. Congress has already said there should be 
coordination; what remains to be done is actually to coordinate. 

The Failure of Enforcement: 
Hearings and Sanctions 

On the surface, it would appear that the contract compliance program 
should furnish frequent occasion for administrative hearings directed 
toward the imposition of sanctions. Among the principal sanctions for 
noncompliance which the Executive Order provides are cancellation, 
termination or suspension of contracts and debarment of contractors.^ 
The regulations contemplate regular compliance reviews, and no contract 
over $1,000,000 is to be awarded unless compliance on the part of the 
successful bidder has been established through a preaward review within 
the preceding twelve months.^ Whenever a compliance review discloses 
that a contractor lacks an acceptable affirmative action program, or has 
"substantially deviated" from an approved affirmative action program, 
he must be declared nonresponsible;^ the regulations provide that upon a 
second finding of nonresponsibility debarment proceedings must be 
commenced.^ Furthermore, "when the Director [of OFCC] has reason- 
able cause to believe that a contractor has violated the equal opportunity 
clause he may issue a notice requiring the contractor to show cause, 
within 30 days, why monitoring, enforcement proceedings or other ap- 
propriate action to ensure compliance should not be instituted." ^ Under 
Revised Order 14, as published in the Federal Register in February, 



' Exec. Order No. 11, 246 §§ 209(a)(5), (6). 

Ml C.F.R. § 60-1. 20(d) (1973). 

^ 41 C.F.R. S 60-2. 2(b) (1973): If, in determining such contractor's responsibility for an award of a contract it comes to 
the contracting office's attention, through sources within his agency or through the Office of Federal Contract Compliance 
or other Government agencies, that the contractor has not developed an acceptable affirmative action program at each of 
his estabHshments or has substantially deviated from such an approved affirmative action program, the contracting office 
shall notify the Director and declare the contractor-bidder nonresponsible unless he can otherwise affirmatively determine 
that the contractor is able to comply with his equal employment obligations or, unless upon review, it is determined by the 
Director that substantial issues of law or fact exist as to the contractor's responsibility to the extent that a hearing is, in his 
sole judgment, required prior to a determination that the contractor is nonresponsible. ..." 

* Ibid. 

5 41 C.F.R. §60-1.27(1973). 



AFFIRMATIVE ACTION 175 

1974, a compliance agency seemed to be required, within sixty days of 
receiving a contractor's affirmative action program, either to notify the 
contractor that he was in compliance or to issue a thirty day show cause 
notice.^ Earlier versions were more vague as to the periods within which 
compliance agencies were to act but also looked toward a finding of 
compliance or issuance of a show cause notice.' Revised Order No. 4 
requires the compliance agency to give a thirty day show cause notice 
"immediately upon finding that a contractor has no affirmative action 
program or has deviated substantially from an approved affirmative 
action program or that his program is not acceptable . . ." ^ While it is 
not certain that these provisions are wholly consistent,^ it is clear that 
cancellation, termination and debarment serve as prompt alternatives, 
at least on paper, to satisfactory compliance. None of these sanctions 
may be imposed without offering an opportunity for hearing. ^^ The Direc- 
tor may suspend existing contracts under the regulations, but only dur- 
ing the period proceedings for cancellation, termination or debarment 
are pending; when the Government has accepted the contractor's plan 
within the preceding twelve months even suspension must be preceded 
by a hearing, unless the contractor has "deviated substantially" from 
the plan.^^ The Comptroller General has ruled that progress payments 
due under a contract may not be withheld for violation of the equal em- 
ployment opportunity clause without an opportunity for hearing. ^^ Final- 
ly, the Equal Employment Opportunity Act of 1972 added to Title VII 
of the Civil Rights Act section 718, which provides: 

No Government contract, or portion thereof, with any employer, shall be denied, 
withheld, terminated, or suspended, by any agency or officer of the United States 
under any equal employment opportunity law or order, where such employer has an 
affirmative action plan which has previously been accepted by the Government for the 
same facility within the past twelve months without first according such employer full 
hearing and adjudication under the provisions of title 5, United States Code, section 
554, and the following pertinent sections: Provided, that if such employer has 
deviated substantially from such previously agreed to affirmative action plan, this 
section shall not apply. . . .^^ 



" 39 Fed. Reg. 5630 (1974). On July 8, 1974, the regulations were amended to make clear that extensions of time could 
be granted, 41 C.F.R. *) 60-6.7, 39 Fed. Reg. 2566,5 (1974). 

' Under 4 1 C. F. R. 60-60, 38 Fed. Reg. 13377 (1973) on-site investigations were to be conducted no later than forty-five 
days from the request to a contractor for his affirmative action program. 41 C.F.R. §§ 60-60.3(c)(2), (d) (1973). Within 
forty-five days of the initiation of the on-site investigation the contractor was to be notified that he was in compliance or a 
30-day show cause notice was to issue. Id. at § 60-6.8. However, the compliance agency could grant an extesnion of time 
"for good cause, including an opportunity for the contractor to avail himself of conciliation. ..." Ibid. 

Ml C.F.R, S 60-2. 2(c) (1973). 

' It is not entirely clear whether a thirty-day show cause notice is to issue upon a finding of noncompliance or after 
failure of conciliation following noncompliance or one or the other, at the discretion of the compliance agency or Director of 
OFCC or depending upon whether the deficiency is discovered in a preaward review, in a regular compliance review or in 
some other way. 

'»41 C.F.R. S 60-1.26(b)(2) (1973). 

" Id. at 60-1.26(b)(2)(iv) (1973). 

'* 52 COMP. GEN. 476 (1973). 

" 42 U.S.C. § 2000e-17, 80 Stat. 384 (1972). 



176 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Government agencies award a large volume of contracts to institutions of 
higher education yet only a few of them have approved affirmative action 
plans. There has been ample opportunity for commencement of proceed- 
ings leading to cancellation or termination of contracts and debarment. 
The typical outcome of a compliance review is a finding of deficiencies in 
the institution's affirmative action program. Only a small number of plans 
have received final approval, a larger number have been rejected and 
many plans have remained pending for long periods of time. The Director 
has had authority to initiate enforcement proceedings whenever he be- 
lieved a contractor had violated the equal employment opportunity 
clause. Findings of noncompliance after compliance reviews are supposed 
to trigger show cause notices. Given the length of time some programs 
have been held under review, it must be the case that two or more 
contracts over $1,000,000 in amount have been awarded to a single 
institution with no finding of compliance having been made. But Revised 
Order 4 prohibits the award of a contract in excess of $1,000,000 unless a 
preaward review has established compliance and requires a debarment 
proceeding upon a second finding of nonresponsibility. Many contracts 
are awarded to institutions which have never undergone a compliance 
review because OCR, in common with other compliance agencies, lacks 
the manpower to perform the tasks set down in the regulations. It is also 
true, however, that the conditions to sanction proceedings are routinely 
satisfied at institutions which are reviewed. Yet the Government has 
never moved seriously to invoke against an institution of higher educa- 
tion the sanctions provided in the Executive Order. ^'* Why not? 

Several reasons may be offered for the absence of formal sanctioning 
proceedings in higher education. It is possible that HEW lacks the 
political will to pursue the drastic remedies of cancellation, termination 
and debarment on any very wide scale or against influential contractors. 
The sanctions are so overwhelming as to deter their use. The government 
projects an attitude of ambivalence toward the program, reflecting the 
tension between the function of the government contract as a means of 
procuring required goods and services at the highest quality for the 
lowest cost and use of the contract as a regulatory technique. HEW has 
an alternative means of bringing pressure to bear on contractors (the 
contract freeze, discussed below) which avoids the commitment of time 
and resources entailed by formal enforcement proceedings and postpones 
the need to resolve the underlying tensions and dilemmas of the regula- 
tions, as well as the problems posed by their lack of fit to the conditions of 
higher education. These features of the regulations furnish an additional, 
formidable impediment to straightforward enforcement. 



'* It is reported that the Office for Civil Rights requested HE Ws General Counsel in November, 1971 , to initiate steps 
leading to termination of Columbia University's federal contracts and debarment of Columbia as a government contractor. 
No hearing was ever held, however. See Wheeler, The Role of Uiiiverxity Couimel i)i Dealing with Equal 
Oppoiiuiiity Conipliaiire Piohlenis, 7 THE COLLEGE COUNCIL 249 (1972). 



AFFIRMATIVE ACTION 177 

At least some OCR employees have entertained doubts about the 
willingness of politically appointed officials to support strong enforce- 
ment measures against contractors. Whether or not such doubts are 
well-founded, their existence probably serves to inhibit vigorous action 
by the people involved in the day to day work of the compliance program. 
How persistent, widespread and deepseated is the skepticism about the 
current administration's commitment to the program is hard to say. Some 
officials profess considerable confidence in the wholehearted support of 
highranking political appointees in the executive branch, others are 
noncommittal and still others acknowledge considerable uncertainty. If 
there is any general rule about the matter, it would seem to be that 
skepticism varies directly with the distance in the organization's hierar- 
chy between the speaker and the highest levels of administration, but 
what this tendency may measure could be less the real attitude of the 
speaker than the degree of his willingness to speak candidly. A number of 
people in and out of government claim awareness of one or another 
incident suggesting that political considerations may have deflected the 
program's administration on some occasion. Naturally, it is quite difficult 
either to verify or to disprove allegations of this kind. It does seem fair to 
say that OCR does not reflect full confidence that the Department stands 
prepared to support stern enforcement measures. 

The very severity of the sanctions creates another obstacle to their use. 
Debarment of a number of universities, including many of those at which 
OCR has concentrated its efforts, would inflict considerable damage. 
Probable consequences would include layoff of personnel, sharp curtail- 
ment or elimination of many research programs and constriction of educa- 
tional and training opportunities, particularly for advanced students. 
Further, since universities are complex organizations very poorly de- 
scribed by the industrial model reflected in OFCC regulations, it is often 
difficult to frame clear issues and build a compelling case demonstrating 
that a university stands in default on a clearly stated and important 
requirement of the program. For example, much frustration has been 
encountered in developing satisfactory analyses of university workforces 
for the purposes of compliance review. Even to the initiated, an epithet 
OCR representatives infrequently deserve, a large university seems a 
confusing, if not chaotic, welter of job titles, disciplines, subfields .and 
organizational units. OCR representatives and university officials have in 
some cases spent considerable time constructing suitable methods of 
collecting and reporting data on employees. ^^ The problem of calculating 
deficiencies and setting goals among academic employees supplies 
another illustration. There has been lacking fully satisfactory means of 
establishing the availability of eligible minority and female candidates, 
especially in the case of minorities, but these determinations must be 



" See the account furnished by a lawyer for Columbia University in Wheeler, n. 14 supra. 



178 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

made to estimate underutilization and set goals. In consequence of 
difficulties of this kind, it is easy to find a university out of compliance but 
hard to say exactly what it should have done in order to comply. Review 
of a university becomes a process of mutual discovery of a series of 
intractable problems; the university may lag behind OCR demands and 
requests, but it can usually avoid falling into obvious recalcitrance. In this 
setting, extreme sanctions which fall heavily on "innocent" employees 
and students seem out of proportion to the university's fault. Con- 
sequently, they are not employed. 

In addition to the paradox that, at a certain point, sanctions lose 
efficacy as they gain in power, contract compliance faces the dilemma that 
its sanctions injure the Government at the same time they hurt the 
university. One of the purposes of contract awards to colleges and univer- 
sities is to strengthen the higher education system. ^^ To withhold con- 
tracts in aid of antidiscrimination efforts thus serves to advance one 
federal policy at the expense of another. (The converse is true only if 
there is no feasible alternative to withholding of contracts.) But Govern- 
ment policies conflict still more sharply. The Government desires the 
goods and services it purchases through contracts with universities. 
Termination, cancellation and debarment further the Government's 
interest in improving the condition of women and minority groups but 
sacrifice the performance for which the Government has contracted and 
the contractor's capacity to assist the Government in achieving many of 
its goals. For example, it was reported that indefinite continuation of the 
recent freeze of contract awards at the University of California at Berke- 
ley would have required cancellation of the Apollo-Soyuz space flight 
planned for July, 1975.^"^ There will be disagreement, of course, over the 
appropriate ordering of priorities as between elimination of discrimina- 
tion and achievement of various other objectives. The responsibility of 
monitoring compliance with the equal employment opportunity clause 
was separated from the function of awarding contracts precisely in order 
to increase the weight of antidiscrimination poUcy in the overall mix of 
governmental objectives represented by the Government contract de- 
vice. The point remains that enforcement of equal employment opportu- 
nity involves a balance of gains and losses, and the responsible officials 
may sometimes conclude that the balance weighs against enforcement. 
At least some OCR officials see this tension in contract compliance quite 
clearly, and this perception contributes to their sense of isolation and to 
their suspicion that sanction proceedings will not be carried through to 
the end against important contractors. 



»« See Wilson, A Dilemma of American Science and Higher Education Policy: The Support of Individuals 
and Fields versus the Support of Universities, 9 MINVERVA 171 (1971). 
" See BNA, 42 DaUy Lab. Rep. A12-A13 (Mar. 1, 1974). 



AFFIRMATIVE ACTION 179 

OCR has available to it one method of bringing pressure to bear on 
contractors apart from the formal procedures of termination, cancellation 
and debarment. This method — the freeze on new contract awards — has 
been used on a number of occasions. ^^ Revised Order No. 4 provides: 

If, in determining such contractor's responsibility for an award of a contract it comes 
to the contracting officer's attention, through sources within his agency or through the 
Office of Federal Contract Compliance or other Government agencies, that the con- 
tractor has not developed an acceptable affirmative action program at each of his 
establishments or has substantially deviated from such an approved affirmative action 
program, the contracting officer shall notify the Director [of OFCC] and declare the 
contractor-bidder nonresponsible unless he can otherwise affirmatively determine 
that the contractor is able to comply with his equal employment obligations or, unless 
upon review, it is determined by the Director that substantial issues of law or fact 
exist as to the contractor's responsibility to the extent that a hearing is, in his sole 
judgement, required prior to a determination that the contractor is nonresponsible. 



Under the Federal Procurement Regulations contracting officers are 
required to evaluate the "responsibility" of prospective contractors. For 
the most part, the criteria of responsibility — e.g., financial resources, 
record of performance — have to do with the contractor's capacity to 
supply goods or services according to contract specifications.^^ However, 
in order to be considered responsible a prospective contractor must "be 
otherwise qualified and eligible to receive an award under applicable laws 
and regulations . . .," including Executive Order 11246 and its regula- 
tions. ^^ If OCR is dissatisfied with a contractor's performance of his 
affirmative action obligations, it may announce that fact to contracting 
agencies, with the likely consequence that contracting officers will with- 
hold findings of responsibility. So long as contracting officers are willing 
to defer to OCR determinations of non-compliance with Revised Order 
No. 4,22 ^Yie agency is able to shut off the flow of federal contract money to 
the offending university for some (unknown) period of time. This 
technique permits OCR to induce concessions from contractors without 
incurring the substantial costs of time and resources demanded by formal 
proceedings. This tactic also allows OCR to demonstrate "progress" in 
expanding employment opportunities for minority groups and women 
while relieving the executive branch of the responsibility of taking a clear 
position on the meaning of affirmative action. 



•« According to information supplied by HEW, delay of contracts has been utilized on some twenty-two occasions 
involving twenty institutions of higher education and nearly $28.5 million in contract awards (in some cases, no contracts 
were pending at the time the contract freeze was imposed). Letter from Cheryl Dikes, Public Information Office, OCR, to 
Sheldon Steinbach, ACE, dated Jan. 15, 1974. 

'MIC.F.R. § 60-2. 2(b) (1973). 

»» Sec. 41 C.F.R. § 1-1.1203 (1973). 

»' Id. at § 1-1. 1203(e); 41 C.F.R. § 1-12.8 (1973). 

*" Under 41 C.F.R. § 60-2.2(b) (1973) a declaration of nonresponsibility is made by the contracting officer. It is 
not clear that he is obliged to heed OCR's conclusions on the question of nonresponsibility. 



180 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

These are only in part the functions for which the contract freeze was 
designed. It appears that OFCC saw in this technique the means of 
solving two problems. As described by a Solicitor of Labor, these were: 

First, the compliance agencies frequently ignored the Executive order's mandate that 
conciliation efforts continue for only a reasonable time, thus permitting dilatory 
contractors to protract "conciliation" for a period of several years; and, second, the 
adversary proceedings contemplated by Section 208(b) of the Executive order, even 
when promptly instituted, are time consuming and necessarily divert limited com- 
pliance resources from other program tasks. ^^^ 

Under the most plausible interpretation of Order No. 4, the discovery 
that a contractor is deficient in meeting his affirmative action obligations 
should trigger a thirty day show cause notice as well as a finding of 
nonresponsibility. If the matter is not resolved during the thirty day 
period, there should follow a "notice of proposed cancellation or termina- 
tion of existing contracts or subcontracts and debarment from future 
contracts and subcontracts. . . ." ^'^ OCR seems unconstrained by this 
timetable, apparently feeling free to continue "conciliation, mediation 
and persuasion" beyond the time periods set by the regulations.^^ The 
compUance review tends to evolve into a negotiation process with a partly 
indeterminate outcome. This whole process is quite likely to consume 
many months and may never reach a definitive conclusion. In this proc- 
ess, show cause notices and the occasional contract freeze serve rather to 
restore movement to a stalled negotiation than to lend structure to an 
enforcement procedure leading either to the imposition of the prescribed 
sanctions or a determination of compliance with a set of ascertainable 
standards. It would seem that OFCC hoped to provide an informal and 
expeditious means of resolving compUance problems which could bypass 
formal hearing mechanisms and proceed to a terminal point within a finite 
time period. This objective assumes, however, that the compHance agen- 
cy's task is primarily an administrative process of monitoring confor- 
mance to a set of determinate obligations described by the regulations. In 
reality, insofar as the regulations defy coherent application in the setting 
of higher education, the contract freeze comes to function as a pressure 
tactic in a bargaining process; delay of contracts helps to force agreement 
with a particular university while case-by-case negotiation of agreements 
allows OCR to escape the responsibility, which a litigation process might 
impose, of committing itself to a meaningful conception of affirmative 
action. 



" Nash, Affirmative Action Under Executive Order II, JiO, 46 N.Y.U.L. REV. 225, 253 (1971). 

" C.F.R. S 60-2.2(c)(l) (1973). 

" According to 41 C.F.R. S 60-2.2(e)(2), "During the 'show cause' period of 30 days every effort shall be made 
by the compliance agency through conciliation, mediation and persuasion to resolve the deficiencies which led to the 
determination of nonresponsibility." However, "if satisfactory adjustments designed to bring the contractor into 
compliance are not concluded, the compliance agency, with the prior approval of the Director, shall promptly 
commence formal proceedings leading to the cancellation or termination of existing contracts or subcontracts and 
debarment from future contracts and subcontracts under § 60-1. 26(b) of this chapter." 



AFFIRMATIVE ACTION 181 

It seems clear that OCR should not be dependent so exclusively on the 
extreme sanctions of termination, cancellation and debarment. Their 
very severity seriously inhibits their use. Consequently, it could easily 
occur that OCR might leave unremedied an institution's defaults on a 
wide range of individual matters because the only sanctions available to 
the agency seem excessively harsh. ^^ It is unlikely, for example, that 
OCR will seek to debar a university because, in the agency's view, a 
department has discriminated on grounds of sex in denying tenure to a 
woman faculty member. On the other hand, to the extent that OCR is 
prepared to pursue debarment in such cases the university is likely to 
capitulate out of unwillingness to risk eligibiUty for contracts on the 
outcome of litigation over a matter of secondary importance to the in- 
stitution as a whole. As a practical matter, a university for which gov- 
ernment contracts are important will not deliberately risk its eligibility 
on the accidents of administrative litigation on any but the most gravely 
significant issue. ^"^ The present system creates the risks either that OCR 
obtains less than full comphance or that the agency imposes on institu- 
tions a version of their obligations which would not survive the test of 
litigation. 

These unsatisfactory alternatives are partly due to the ambiguous and 
indeterminate character of the regulations. On one hand, institutions are 
uncertain as to the nature and extent of their obligation and, on the other, 
OCR's findings of compliance or noncompliance have a large element of 
pure discretion. In addition to revision of the regulations themselves, it 
would seem desirable to seek better definition of the program's require- 
ments through the process of "elucidating litigation." This process will 
not go forward, however, within the framework of the present system of 
sanctions. Either OCR will not invoke them or the institution will make 
the minimum concessions necessary to avert the risk of debarment. 

Two reforms seem desirable to correct this situation: (1) OCR should 
have at its disposal a system of graduated sanctions; (2) OCR should not 
be able to impose any sanction without an opportunity for prior hearing. 
The first of these is no simple matter to arrange. Essentially it is a matter 
of providing by contract for the range and flexibility of judicial remedies. 



" See Fisher, The Carrot and the Stick: Conditions For Federal Aaaiatance, 6 HARV. J. LEGIS. 401 
(1969), for a description of this dilemma. 

" 41 C.F.R. § 60-1. 24(c)(4) provides: "Where a prime contractor or subcontractor, without a hearing, shall have 
complied with the recommendations or orders of an agency or the Director and believes such recommendations or 
orders to be erroneous, he shall, upon filing a request therefor within ten days of such compliance, be afforded an 
opportunity for a hearing and review of the alleged erroneous action by the agency or the Director." It does not 
appear that this procedure has ever been utilized. For this there may be several reasons. Contractors dislike 
challenging the Government for fear of prejudicing the award of future contracts. Action once taken can be difficult 
to undo later — e.g., a grant of tenure to a complainant. OCR tends to avoid "orders" or "recommendations" in 
favor of pointing to "deficiencies" (e.g., inadequate workforce analysis, availability not sufficiently established), and 
the requirements of the program are so vague and open-ended that a contractor can ordinarily assume he is out of 
compliance. Indeed, it may be doubted that OCR has been entirely satisfied even with those few plans it has ap- 
proved, to say nothing of OFCC. To contest an order, therefore, invites a retaliatory debarment proceeding, and 
this poses serious risks. 



182 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

The penalties for violation of the regulations or departures from an 
affirmative action program should be heavy enough to discourage frivo- 
lous contests for purposes of delay or obstruction but not so overwhelm- 
ing that institutions feel compelled to abandon genuinely held positions on 
serious questions. Sanctions should be adequate to deter but not so 
devastating that they either are not employed or impose losses out of 
proportion to the institution's default or coerce comphance to debatable 
interpretations of the regulations. Depending upon circumstances, sanc- 
tions for demonstrated violations have one or more of three functions to 
perform: (1) to deter future violations of the regulations generally, by the 
respondent and others, (2) to compel a respondent to conform a continu- 
ing cause of conduct to the requirements of the program, (3) to make 
whole injured persons. A dispute might arise over an institution's recruit- 
ing practices, an example of (2) above. If those are shown to fall short of 
compliance with the institution's obligations under the Executive Order, 
the indicated remedy is the equivalent of an injunction. On the other 
hand, if an institution fails in a few individual instances to perform its 
commitment to advertise openings, an illustration of (1), a monetary 
penalty, the equivalent of a fine, might be appropriate. Finally, it may be 
desirable in some cases to provide remedies for individuals — i.e., a 
promotion or grant of tenure. 

The Executive Order, as it stands, does not lend itself to a remedial 
scheme of this kind. It would be possible for OCR to seek termination or 
cancellation of a particular contract or a "portion thereof " ^® without 
attempting debarment as well. This would be a crude solution since it 
would tie the possible range of remedies to an institution's pattern of 
contracts and would allow only limited flexibility in the choice of remedy. 
It would also have undesirable side effects on the institution's activities 
and employees involved in the contract and on the contracting agency. 
More satisfactory would be amendment of the Executive Order to permit 
promulgation by regulation of a scale of monetary penalties to which 
institutions would consent in entering into govermment contracts. These 
would be imposed for violations either admitted by institutions or proved 
through the existing hearing procedures (subject to judicial review). 
Penalties in appropriate amounts would either be imposed, as in cases in 
which fines are appropriate, or forgiven upon compliance with the obliga- 
tion estabUshed through litigation, as when a change in practice or 
provision of remedies to individuals is demanded from the institution. 
The debarment sanction could be retained for cases of continued 
recalcitrance. 

A solution of this kind would work awkwardly or imperfectly in some 
cases. Since it would almost certainly prove infeasible to specify in 



" Executive Order 11, 246, in section 209(a)(5), provides for cancellation, termination or suspension of a contract 
or "any portion or portions thereof." 



AFFIRMATIVE ACTION 183 

advance what penalties would be appropriate for which violations, the 
question of penalty would often have to be litigated along with the 
underlying issue of the violation itself. Consequently, OCR might be 
tempted to claim large penalties to gain bargaining leverage, thereby 
circumventing the hearing process. Also, such a system would function 
most effectively with institutions which rely heavily on government 
contracts, much less well with institutions which contract with the Gov- 
ernment only sporadically or for small amounts. Defects Hke these, 
however, simply reflect the distortions and anomalies which accompany 
the use of the government contracts as a regulatory device. As always, 
proposals have to be judged against existing arrangements and practical 
alternatives. 

The availability of an adjudicative process does not insure that it will be 
used. As long as OCR can exert significant pressure on institutions 
outside the framework of formal sanctions, the program's content may 
continue to depend more on what the agency has the strength to negotiate 
than on what the regulations can be shown to require. At present, 
termination or cancellation of contracts and debarment can take place 
only upon opportunity for prior hearing. However, the agency claims the 
power simply to declare an institution a nonresponsible bidder for inabil- 
ity to comply with the equal employment opportunity clause, and this 
technique, by damming the flow of contract funds to the institution, may 
enable OCR to win concessions which may exceed what can properly be 
imposed. ^^ It is open to doubt whether the compliance agencies actually 
have authority to make findings of nonresponsibiUty without affording an 
opportunity for hearing. ^^ However that may be, it would seem desirable 
as a matter of policy to force OCR to formulate an intelligible conception 
of the program and demonstrate its legitimacy by channelling enforce- 
ment away from the administrative mechanism of the contract freeze and 
into an adjudicative process. 

The same considerations apply to administration of Title IX, forbidding 
sex discrimination in federally assisted education programs and ac- 
tivities. Section 902 provides: 

Each Federal department and agency which is empowered to extend Federal financial 
assistance to any education program or activity, by way of grant, loan, or contract 
other than a contract of insurance or guaranty, is authorized and directed to effectuate 
the provisions of section 901 with respect to such program or activity by issuing rules, 
regulations, or orders of general applicability which shall be consistent with achieve- 
ment of the objectives of the statute authorizing the financial assistance in connection 
with which the action is taken. No such rule, regulation, or order shall become 



'* The use of the contract freeze to settle dispute over the meaning of the regulations is comparable to resort to 
strike in preference to arbitration to resolve a question arising under collective bargaining agreements. In both 
situations a test of strength determines issues of interpretation. 

"> In Croimi Zellerbach Corp. v. Wirtz, 281 F.Supp. 337 (D.D.C. 1968), the court enjoined the Secretary of 
Labor from, inter alia, temporarily suspending the plaintiff corporation fi-om further business with the government 
prior to a hearing on the plaintiffs compliance status under Executive Order No. 11, 246. 



184 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

effective unless and until approved by the President. Compliance with any require- 
ment adopted pursuant to this section may be effected (1) by the termination of or 
refusal to grant or to continue assistance under such program or activity to any 
recipient as to whom there has been an express finding on the record, after opportu- 
nity for hearing, of a failure to comply with such requirement, but such termination or 
refusal shall be limited to the particular political entity, or part thereof, or other 
recipient as to whom such a finding has been made, and shall be limited in its effect to 
the particular program, or part thereof, in which such noncompliance has been 
refound, or (2) by any other means authorized by law: Provided, however, that no 
such action shall be taken until the department or agency concerned has advised the 
appropriate person or persons of the failure to comply with the requirement and has 
determined that compliance cannot be secured by voluntary means. In the case of any 
action terminating, or refusing to grant or continue, assistance because of failure to 
comply with a requirement imposed pursuant to this section, the head of the Federal 
department or agency shall file with the committees of the House and Senate having 
legislative jurisdiction over the program or activity involved a full written report of 
the circumstances and the grounds for such action. No such action shall become 
effective until thirty days have elapsed after the filing of such report.^* 

HEW's draft regulations under Title IX provide for suspension of assist- 
ance while formal proceedings to terminate or deny assistance are pend- 
ing. ^2 To the extent that assistance is critical to the recipient institution, 
it will be true under Title IX, as under the Executive Order, that 
interruption of funds will lead to a negotiated outcome, circumventing the 
procedures of hearing and judicial review afforded by the statute as well 
as its machinery for legislative oversight. It would seem as desirable in 
the administration of Title IX as in that of the Executive Order that any 
cut-off of funds follow, rather than precede, the adjudicative procedure 
the statute provides. 

Precisely the same argument holds for Title VI of the Civil Rights Act of 
1964, which Title IX simply repeats in the respects relevant here.^^ 

The Dilemma of Enforcement: 
Unadministrable Standards of Merit 

The Executive Order forbids discrimination and requires affirmative 
action. Neither of these terms lends itself to straightforward application. 
Labor markets are inherently discriminatory; one of their functions is to 
allocate a good in short supply relative to demand. The formula "dis- 
crimination on grounds of race, color, religion, sex or national origin" 
seems to mean that these attributes are not to figure in the discrimina- 
tions among persons which employment decisions inevitably effect. On 
one view, claims of discrimination turn on the question whether or not the 
employer took these characteristics into account, using them as stand- 
ards to guide his decisions. Discrimination poses fundamentally a 



" 20 U.S.C. S 1682, 86 Stat. 374 (1972). 
" 39 Fed. Reg. 22238-39 (1974) (S 86.63(b)). 
" 42 U.S.C. S 2000d-l, 78 Stat. 252 (1964). 



AFFIRMATIVE ACTION 185 

psychological issue, and the employer's intentions are crucial. If it ap- 
pears that his decisions do not vary depending, for example, on the race of 
applicants or employees, he cannot be guilty of racial discrimination. 
What considerations apart from race may determine his decisions are 
immaterial. The employer can discriminate on any basis he chooses, other 
than race. If, for example, an employer refuses to hire applicants who 
have arrest records, his practice is nondiscriminatory even though a 
larger proportion of blacks than of whites have arrest records. At one 
time this notion of discrimination as conduct resulting from an intention 
to discriminate on prohibited grounds seems to have marked the limit of 
the legal conception of discrimination.^ 

On another view of the matter, racial discrimination need not rest on an 
intention to discriminate on grounds of race but may exist even where 
there is an intention not to discriminate in this way. Now, claims of 
discrimination depend on the effects of the employer's practices. If their 
effect is disproportionately to disadvantage blacks as against whites, the 
employer has discriminated on grounds of race. 

Of course, the question arises, disproportionate with respect to what? 
One answer might be, with respect to the fraction of blacks in the labor 
force. Another answer would be, with respect to the relative "merit" — 
i.e., job performance — of blacks and whites in the labor force. These two 
answers might come to the same thing if it were the case that capacity for 
job performance were equally distributed among blacks and whites for all 
jobs. 2 This is, however, not the case. For example, a lower percentage of 
blacks than whites possess what society insists upon as a necessary 
minimum of training for the practice of medicine. The cumulative impact 
of the black experience in the United States has the consequence that 
relative capacity across the entire range of jobs in the economy (in the 
sense of "present" as opposed to "innate" capacity) is not proportionately 
distributed between the two racial groups. It makes a difference whether 
discrimination against blacks is defined as, employing a lower proportion 
of blacks in particular jobs than their proportion of the labor force, or as, 
employing less able whites than available blacks. The former definition 
may serve as a measure of discrimination in society, but it is unlikely to 
furnish a test of unlawful discrimination unless modified to include a 
standard of minimum qualification. At least three considerations combine 
in favor of the latter definition. It serves an interest in efficiency. It gives 
effect to the view that the person who will perform a job best deserves the 
job. It rejects race as a criterion of selection. When discrimination is 
understood in this way, the case of the employer who rejects applicants 



' See Blumrosen, Strangers in Paradise: Griggs v. Duke Power Co. and the Concept of Employment Dis- 
crimination, 71 MICH. L. REV. 59, 66-75 for an account of the evolution of the legal concept of discrimination. 

* They would not necessarily amount to the same thing. If, for example, blacks and whites differed in their relative 
access to employment opportunities — owing to residential patterns and plant location — disproportionately high numbers 
of blacks or whites might be employed even though the capacity of the two groups was equal. 



186 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

with arrest records needs to be reexamined. Unless arrest records signal 
some disqualifying trait for the job in question, this employer dis- 
criminates on grounds of race. ^ It is this second conception of discrimi- 
nation as decisions which, whether or not intentionally, fail to match 
racial patterns of employment with capacity for job performance that 
approaches the contemporary legal meaning of discrimination.'* 

This expansion of the meaning of discrimination reduces the scope of 
affirmative action, as used in the Executive Order. If discrimination 
meant only knowing or intentional departures from the principle of 
selection according to capacity for job performance, then a duty to take 
affirmative action could be used to alter unintentional or inadvertent 
practices with the same effect. It may be, for example, that an employer's 
failure to recruit aggressively among minority groups and women is not 
discrimination. If so, however, a duty to recruit may be imposed as part of 
a federal contractor's affirmative action obligation.^ But affirmative ac- 
tion on behalf of minority groups and women reaches its limit at the point 
of discrimination against whites and men. Although the Constitution may 
permit the Government to require preferences to members of disad- 
vantaged groups, it appears that federal law at present forbids dis- 
crimination for as well as against such groups. Thus Title VII prohibits 
discrimination on grounds of race or sex, not discrimination against 
blacks or women, and the Supreme Court has read the statute as saying 
that "discriminatory preferences for any group, minority or majority, is 
precisely and only what Congress has proscribed." ^ Since Title VII 
covers federal contractors, it is very doubtful that the contractual 
stipulation for affirmative action could require reverse discrimination.'^ 
In any case, it seems that the Executive Order itself bans discrimination 
against whites or males. ^ Although the obligation to take affirmative 



' InGregory v. Litton Systems, Inc.. 472 F.2d 631 (9th Cir. 1972), the court held that the use of arrest records as a 
screening device violated Title VII on the grounds that the device disproportionately disadvantaged black appUcants and 
had not been shown to further a reasonable business purpose. 

* This proposition emerges from decisions establishing the principles that racial imbalance may create aprima/acie 
case of discrimination, that findings of discrimination do not require proof of intention to discriminate and that racially 
neutral selection criteria which adversely affect minority groups are unlawfully discriminatory unless shown to be related 
to job performance. For a discussion of these principles see Larson, The Development of Section 1981 as a Remedy 
For Discrimination in Private Employment, 7 HARV. CIV. RIGHTS-CIV.-LIB. L. REV. 56, 90-% (1972). 

» In In re Allen Bradley, CCH EMPL. PRAC. GUIDE HI 8065, 8070 (OFCC 1968, 1969), recruitment from walk-in 
applicants was considered to violate the contractor's affirmative action obligation rather than his duty not to discriminate. 

6 Griggs v. Duke Power Co., 401 U.S. 424, 431 (1971). 

' See420P. ATT'Y GEti.No.37atU(19&9),cf.,Youngstown SheetandTubeCo.v.Sau>yer,Z43\J.S.579a952). 

' Thus, the Executive Order does not prohibit discrimination against minority groups and women but discrimination 
on grounds of race or sex. Order No. 4 provides that 'The purpose of a contractor's establishment and use of goals is to 
insure that he meet his affirmative action obligations. It is not intended and should not be used to discriminate against any 
applicant or employee because of race, color, religion, sex, or national origin." 41 C.F.R. § 60-2.30. HEW's "Higher 
Education Guidelines: Executive Order 1 1246" state: "A university contractor must carefully and systematically examine 
all of its employment policies to be sure that they do not, if implemented as stated, operate to the detriment of any persons 
on grounds of race, color, religion, sex or national origin."**'* "^he nondiscrimination requirements of the Executive 
Order apply to all persons, whether or not the individual is a member of a conventionally defined 'minority group. ' In other 
words, no person may be denied employment or related benefits on grounds of his or her race, color, religion, sex or 
national origin." HEW, "Higher Education Guidelines: Executive Order 11246." 2-3, 3 (1972) (emphasis in original). 



AFFIRMATIVE ACTION 187 

action is said to require something more than nondiscrimination, the duty 
not to discriminate for or against persons on grounds of race, color, 
religion, sex or national origin limits the reach of affirmative action. As 
the meaning of discrimination comes to take in more ground affirmative 
action "to ensure that applicants are employed, and that employees are 
treated during employment, vi^ithout regard to their race, color, religion, 
sex, or national origin" comes to be squeezed more and more tightly 
against the ban on discrimination hostile to persons of any race, color, 
religion, sex or national origin. 

The cumulative effect of the duties to refrain from discrimination and to 
take affirmative action is to compel employee selection according to job 
performance, actual or predicted. A contractor's failure to employ 
members of minority groups and women in each job in the proportions 
indicated by their relative capacity for performance suggests that he has 
been derelict in taking affirmative action if, indeed, he has not dis- 
criminated. On the other hand, to the extent that he has favored minority 
persons or women over whites or males of superior job performance 
capacity he has been guilty of reverse discrimination. To be workable at 
all, the contract compliance program must have an administrable con- 
ception of job performance. It is at this point that the program suffers 
breakdown in its application to faculty employment. 

Administration of the contract compliance program is facilitated by 
certain conditions. The regulations assume that the contractor is an 
organization characterized by an hierarchical authority structure, with a 
centralized management capable of establishing a system of personnel 
rules and monitoring conformance to the rules by subordinates. Entry 
level jobs require little training, experience or education beyond that 
widely distributed in the population at large and any additional necessary 
skills are acquired during employment. The content of jobs is clearly 
understood, as when the technology of production defines the job, and 
criteria of performance are subject to objective measurement. There is an 
effective ceiling on performance imposed by the character of the job itself 
or, at least, there is an average level of performance defined as successful 
which is commonly attained. Faculty employment in higher education 
stands in marked contrast. In matters of employment and promotion the 
institution's authority tends to be widely diffused to departments and 
schools, and there is considerable participation by faculty in faculty 
personnel matters, amounting at times almost to control. Entry into 
faculty employment typically follows a lengthy and intellectually de- 
manding period of training, and entry may only serve to commence a 
probationary period of several years duration, often with no assured 
outcome. The professor's role is very complex and the variation in 
performance quite wide. The work is highly specialized, and much of it, 
especially research, can only be judged by experts. Criteria of per- 



188 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

formance are vague and subject to dispute. Nevertheless, they tend to 
produce rankings of people within a field rather than broad groupings. In 
this setting, it is possible to estimate how well various groups have 
succeeded, but difficult to determine how much of observed differentials 
result from illegal discrimination by institutions and how much from 
varying tastes or preferences and the cumulative effect of such influences 
as socialization or discrimination in society at large. 

A considerable amount of work has been done on the position of women 
among higher education faculty.^ This work strongly suggests some 
degree of sex discrimination. At the same time, it helps to illustrate why 
the contract compliance program furnishes a very problematic remedy. 
According to a recent study by the Office of Education, women comprise 
some 22.5 percent (57,297) of full-time college and university faculty on 
nine- and ten-month contracts (total: 254,930). The average salary of 
women for the 1972-73 academic year was $11,862, that of men $14,352. 
The following table shows the rank and salary distribution of male and 
female faculty (1972-73): 



Total 



Universities 



Other 4-vear 



2-year 



Rank and No. of Average 

sex faculty salary 

Total 254,430 $13,793 

Men 197,633 14,352 

Women 57,297 11,865 

Professors 55,890 18,911 

Men 50,325 19,128 

Women 5.565 16,950 

Associate 

Professors 54.479 14,353 

Men 49,674 14,481 

Women 9,805 13,704 

Assistant 

Professors 87,049 12,043 

Men 66,190 12,233 

Women 20,859 11,437 

Instructors 55,512 10,613 

Men 31,444 10.964 

Women 21,068 10,089 



No. of 
faculty 



Average 
salary 



No. of 
faculty 



Average 
salary 



No. of 
faculty 



Average 

salary 



95,524 


$15,231 


121,014 


$13,052 


38,392 


$12,556 


79.222 


15,829 


92,676 


13,496 


25,735 


12.889 


16.302 


12,325 


28.338 


11,601 


12,657 


11,862 


27,980 


20,741 


25,480 


17,156 


2,430 


16,231 


26,135 


20.931 


22.296 


17,273 


1,894 


16,544 


1.845 


18.050 


3.184 


16,620 


536 


15,122 


24,954 


14,591 


30.233 


13,849 


4,302 


14.426 


21,684 


15,063 


24,764 


13,974 


3,226 


14.459 


3,270 


14.207 


5,459 


13,280 


1,076 


14,327 


32,038 


12.442 


46,845 


11,745 


8,166 


12,181 


25,535 


12.594 


35,098 


11,%7 


5,557 


12,259 


6,503 


11,845 


11,747 


11,083 


2,609 


12,015 


10,552 


9,749 


18,446 


9,401 


23,494 


11,954 


5,868 


10,009 


10,518 


9,550 


15,058 


12,325 


4,684 


9,423 


7,948 


9,204 


8,436 


11,292 



More sophisticated studies indicate a rather complex set of explanations 
underlying data like these. For example, one of the more probing in- 



• ACADEMIC WOMEN ON THE MOVE (Rossi ed. 1973) is a convenient collection of material represenutive of the 
literature which undertakes to demonstrate the disadvantaged position of women in higher education. 



AFFIRMATIVE ACTION 189 

vestigations appears to demonstrate that part of such differentials in 
rank and pay as those shown above is due to factors like differences in 
highest degree held, interest in teaching as against research, publication, 
academic discipline and type of parent institution. ^^ Thus, it is reported 
that "women college faculty are only about half as likely as men faculty to 
hold a doctorate." ^^ Women are more highly concentrated in lower 
paying fields, more often indicate primary interest in teaching than in 
research, publish less and are employed disproportionately in two-year 
institutions. Women appear less mobile than men, apparently with a 
negative effect on their salaries. Even after allowance is made for dif- 
ferences between male and female faculty of this kind, however, sig- 
nificant discrepancies remain. The authors conclude that: 

If the same criteria, with the same weights, were apphed in awarding rank to women 
as are applied to men . . ., the average compensatory increase in rank would be 
from slightly below to somewhat above the assistant professor level, an average of 
one-fifth step. To award women the same salary as men of similar rank, background, 
achievements, and work settings . . . would require a compensatory average raise of 
more than $1,000 (1968-69 standards). This is the amount of salary discrimination 
which is not attributable to discrimination in rank. The amount of actual salary 
discrimination, attributable to discrimination in advancement, would substantially 
increase this figure. ^^ 

Further, some of the choices women make which help account for their 
lower pay and rank may not be choices at all but additional handicaps 
imposed by discrimination. Hiring discrimination may restrict their ac- 
cess to better paying institutions, and they may be given fewer oppor- 
tunities in administration and research than they deserve. ^^ 

On the other hand, many women may make certain career choices 
which tend to limit their professional success but which accurately reflect 
their interests and their perception of their abilities. In any event, some 
part of the differential between men and women faculty seems not to be 
the result of failure to apply existing academic standards evenhandedly 
but rather a consequence of their application. Thus, high scholarly 
productivity is rewarded, and this tends to favor male faculty. However, 
the standards themselves may be attacked as unfairly discriminatory. 
The study just quoted from illustrates a common approach: 

Sex discrimination in academe does not begin when a woman accepts an appointment 
at a college or university. Rather, its roots reach far back to the cumulative effects of 
earlier sex differentiation processes and discrimination: early childhood socialization 
for "appropriate" sex roles, different treatment and expectations accorded to boys 
and girls by their parents, teachers, and peers throughout adolescence and early 
adulthood, differential opportunities for access and admission to undergraduate and 
graduate school, and so forth. As a result, when they enter teaching careers in 



"> Astin & Bayer, Sex Discrimination in Academe, EDUCATIONAL RECORD. Spring, 1972, 101, 103. 
" Ibid. 
"Id. at 115. 
" W. at 116. 



190 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

colleges and universities, most women have interests, aspirations, expectations, 
educational backgrounds, and life experiences that differ from those of their male 
counterparts. Once on the faculty, women experience a second barrier to equality 
with men: the academic reward system is biased toward behaviors and activities 
exhibited more often by men than women. Indeed, the content of the academic reward 
system was established by men, so rewards go primarily to those women who accept 
and share men's criteria for academic rewards. Thus, administration, research and 
publications, which men engage in to a greater extent than women, receive higher 
rewards than teaching, which women devote more time to than men. This reward 
system is far from ideal and may even be dysfunctional to the educational objectives of 
American colleges and universities. Indeed, the system should be examined and 
restructured. ^* 

This passage strikes two themes: the theme of the mute inglorious Milton 
and that of the ugly duckling. On one side, women are differentiated from 
men by socialization processes which stultify their innate capacity for 
intellectual roles; on the other, women are different from men in ways 
which enhance their capacity for service in higher education, once it is 
understood that the faculty role should properly be defined by a different 
set of characteristics than it is at present. Anyone who has worked on a 
university campus during the past several years must by now be familiar 
with both these themes, developed in the case of minority groups besides 
that of women, as well as with the claim that women who perform 
indistinguishably from men are less well rewarded nonetheless. Consid- 
erable evidence can be mustered in support of the last proposition. 
Neither of the first two is clearly wrong by any means. Together, they set 
a dilemma for policies aimed at producing "equal opportunity." There is 
reason to believe that existing standards have not been applied even- 
handedly across sex lines in a significant number of cases. It may also be 
true that one or more groups protected by the Executive Order and 
legislation might still fare less well, on average and for some period of 
time at least, than whites and males under a regime of perfect consistency 
in the application of standards of faculty employment. It might also be 
true that a reformulation of standards would improve the position, e.g., of 
women relative to men. Whether they should be reformulated, and how, 
squarely poses the issue of "merit" in faculty employment and raises, in 
turn, the question of how the mission, or missions, of higher education 
should be defined. OFCC's regulations are incapable of speaking to such 
questions intelligibly. Taken literally, however, the regulations preempt 
them. This dubious objective they achieve by imposing an impossible 
burden of demonstration on judgments of academic merit. 

A contractor's obligation to take affirmative action follows from the 
discovery of underutilization in his workforce. The regulations define 
"underutilization" as "having fewer minorities or women in a particular 
job classification than would reasonably be expected by their availabil- 

" Id. at 101. 



AFFIRMATIVE ACTION 191 

ity." ^^ A notion of availability implies possession of attributes important 
for successful job performance; a person cannot be said to be available for 
a position in any meaningful sense if he lacks capacity to perform it. In 
calculating underutilization, the contractor is to "consider . . . the gen- 
eral availability of minorities [women] having requisite skills in the 
immediate labor area" and "the availabilities of minorities [ women ] 
having requisite skills in an area in which the contractor can reasonably 
recruit," as well as "the availability of promotable and transferable 
minorities [female employees] within the contractor's organization." ^^ 
What attributes, or skills, a job demands, however, is no less a judgment 
than the decision who, among a number of candidates, possesses them in 
greatest measure. Misevaluation of the requirements of a job and of the 
job-related characteristics of the persons considered both could be 
systematically biased against women or minority persons. Where this 
occurs, it will result in "adverse effect" — technically, "a differential rate 
of selection (for hire, promotion, etc.) which works to the disadvantage of 
a covered group." ^' Misdefinition of the job may lead to underutilization 
also, but avoid adverse effect in this narrow sense. This will happen if 
members of minority groups and women who do have "requisite skills" 
are discouraged from applying (or are not considered) because they 
possess less often than whites or men the superfluous attributes the con- 
tractor requires. The regulations take account of this possibility. Con- 
tractors are instructed that "special attention should be given to 
academic, experience and skill requirements to insure that the re- 
quirements in themselves do not constitute inadvertent discrimina- 
tion." ^^ Further, "where requirements screen out a disproportionate 
number of minorities or women such requirements should be profes- 
sionally validated to job performance." ^^ How one determines that a 
screening effect is disproportionate in impact is left unsaid. However, 
"Testing and Selection Order Guidance IVIemorandum No. 7a," recently 
issued by the Department of Labor, speaks to the general problem with 
unusual clarity: 

12. Q. May a contractor utilize unvalidated selection requirements in deciding the 
availability of applicants with requisite skills when using Revised Order No. 4 criteria 
to establish goals? 
A. No.20 

Thus, who is available and, hence, whether there is underutilization 
(including adverse effect), together with the extent of underutilization, at 



" 41 C.F.R. § 60-2.11(a) (1973). 

'« Id. at §§60-2.n(a)(l)(iv), (v), (vi), 60-2. 1 l(a)(2)(iii), (iv), (vi). Seealso41 C.F.R. S 60-2. ll(a)(2Xv): 'The availabil- 
ity of women seeking employment in the labor or recruitment area of the contractor." 

" U.S. LAB. DEPT. EMPLOYMENT STANDARDS ADMINISTRATION, OFCC, Testing & Selection Order 
Guidance Memorandum No. 7a, "Question & Answer 7" (1974). 

•• 41 C.F.R. § 60-2.24(b) (1973). 

'» Ibid. 

" Testing & Selection Order Guidance Memorandum No. 7a, n. 17 supra, "Questions & Answers" 12. 



192 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

least partly depends upon selection requirements. To insure detection of 
inaccurate measures of availability resulting from faculty selection re- 
quirements, those requirements must be validated. What is validation? 
According to the Guidance Memorandum, "validation is the demon- 
stration of the job relatedness of a selection procedure." ^^ Under the 
Testing and Selection Order, there are three methods of showing the 
necessary relation between a position and a procedure used to select for 
it: criterion-related validity, content validity and construct validity. ^^^ 
The regulations provide technical standards for establishing criterion 
validity and content validity (but not construct validity). Satisfaction of 
these standards would appear to depend upon the use of "tests," which 
are defined as follows: 

For the purpose of this order, the term "test" is defined as any paper-and-pencil or 
performance measure used as a basis for any employment decision. This order applies, 
for example, to ability tests which are designed to measure eligibility for hire, 
transfer, promotion, training, or retention. This definition includes but is not re- 
stricted to, measures of general intelligence, mental ability and learning ability; 
specific intellectual abilities; mechanical, clerical and other aptitudes; dexterity and 
coordination; knowledge and proficiency; occupational and other interests; and at- 
titudes, personality or temperament. The term "test" also covers all other formal, 
scored, quantified or standardized techniques of assessing job suitability including, 
for example, personal history and background requirements which are specifically 
used as a basis for qualifying or disqualifying applicants or employees, specific edu- 
cational or work history requirements, scored interviews, biographical information 
blanks, interviewers' rating scales and scored application forms. . . .^^ 

There may be selection techniques employed which are not "tests." The 
regulations deal with these in the following manner: 

Selection techniques other than tests, as defined in § 60-3.2, may be improperly used 
so as to have the effect of discriminating against minority groups or women. Such 
techniques include, but are not restricted to, unscored or casual interviews, unscored 
application forms and unscored personal history and background requirements not 
used uniformly as a basis for qualifying or disqualifying applicants. Where there are 
data suggesting employment discrimination, the contractor may be called upon to 
present evidence concerning the validity of his unscored procedures regardless of 
whether tests are also used, the evidence of validity being of the same types referred 
to in §§ 60-3.4 and 60-3.5. Data suggesting the possibility of discrimination exists, for 
example, when there are higher rates of rejection of minority candidates than of 
nonminority candidates for the same job or group of jobs or when there is an under- 



" Id.. "Questions & Answers" 3. 

*'■' These types of validity are defined as follows: 

Criterion-related validity — A .statistical demonstration of a relationship between a selection device and the job 
performance of a sample of workers. 

Content-validity — A demonstration that the content of a selection device replicates job duties disclosed in the job 
analysis, or measures job knowledge, or skills shown to be critical and essential for immediate performance on the job. 

Construct-validity — A demonstration that (a) a selection device is a measure of the construct {e.g., honesty) and (b) 
the construct is related to actual job performance. 

/6k/. 

"41 C.F.R. 5 60-3.2(1973). 



AFFIRMATIVE ACTION 193 

utilization of minority group personnel among present employees in certain types of 
jobs. . . .'^^ 

Since selection techniques can only be validated under the criteria given 
in the regulations for tests, which entail quantification, it is hard to see 
how any procedure other than a test can be validated. Rather, if valida- 
tion is necessary, it would seem that a test must be substituted. 
Confirming this impression, the Guidance Memorandum says: 

Although unscored interviews or applications are not specified in the definition of a 
test, these procedures also come under the requirements of the Testing and Selection 
Order if they have the effect of discriminating against minorities or women (sec. 
60-3.3). In these cases the contractor must either eliminate the adverse effect or 
quantify the procedures (i.e., make them into "tests") so that they can be validated. 
Therefore, all selection procedures are covered by the Testing and Selection Order.** 

Of course, validation is demanded only when there exists "data suggest- 
ing employment discrimination." The Guidance Memorandum states, "If 
there is no finding of adverse effect, there is no validation require- 
ment." ^^ However, under the Testing and Selection Order, an implica- 
tion of discrimination may be suggested not only by differential rejection 
rates according to race or sex (adverse effect) but also by the residual 
phenomenon of underutilization. Underutilization depends upon avail- 
ability, and availability cannot be determined by unvalidated selection 
requirements. 

How feasible is validation? At best, it seems, validation is difficult and 
expensive. The cost and difficulty is markedly increased by the re- 
quirement that "differential validity" be demonstrated — i.e., that a test 
be separately validated for groups in the relevant population separated 
by race and sex. The utility of establishing differential validity seems to 
be in controversy among psychologists.^^ Otherwise, the criteria of 
validity may well reflect something approaching a consensus of informed 
professional judgment on the conditions justifying high confidence in a 
test; they are taken over from a manual of the American Psychological 
Association. What is less clear is how widely those conditions may be 
feasibly achieved. ^'^ That they can be satisfied at all readily seems doubt- 
ful in the case of a great deal of professional employment. 

For example, take the requirement of a Ph.D. as a condition of em- 
ployment in academic positions. This might well be considered a "test." 
Is a university to hire one hundred persons with the degree and one 
hundred without and then compare the performance of the two groups? 
Presumably, the definitive comparison would take place after several 



" Id. at S 60-3. 13. 

" Testing & Selection Order Guidance Memorandum .Vo. 7a., n. 17 supra, "Questions & Answers" I. 

" Id. at 6. 

« See Malbin, Hiring Practices, 5 NATL J. REPS. 1429, 1433 (1973). 

" Id. at 1432. 



194 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

years — something like the presently established period for tenure 
review. How would one eliminate the possibility of "supervisory bias" in 
evaluations? Is it possible the Ph. D. is job related for university positions 
in the physical sciences but not in foreign languages? In one subfield but 
not elsewhere in the discipline? If so, is there a sufficiently numerous 
population appropriately distributed to test the possibility? To demon- 
strate differential validity? 

One must ask what are the elements of the performance under 
evaluation. At the University of California, for example, faculty mem- 
bers are to be judged on the dimensions of teaching, scholarship, univer- 
sity service and public service. It is probably accurate to say these are 
classically regarded as analytically separable but, in practice, aspects of a 
single role. Thus, teaching feeds scholarship and scholarship teaching, 
while the professor's cultivation of his discipline equips him to contribute 
to the public interest at the intersections of scholarly inquiry and public 
debate or pohcy formation, and the need for reconciling the demands of 
professional autonomy with the imperatives of coordinating intricately 
overlapping and opposing activities and interests in a complex organi- 
zation imposes a citizen's obligation of participation in governance. 

No doubt, "scholarship" ranks well ahead of the other components of 
the faculty member's role. Even though scholarship is crucial to ap- 
pointment and promotion, however, it receives different weight in rela- 
tion to the remaining elements in different schools and departments and, 
additionally, falls subject to varying criteria in one unit as against 
another. It is not always clear in what exactly scholarly work consists, 
and the worth of most examples of this genre is proverbially vulnerable 
to challenge. 

Why should not teaching rate higher in relation to scholarship? Many 
people believe it should. But, whatever its relative weight, how should it 
be judged? Teaching takes place in many settings and at a number of 
levels. These include lecture courses for large undergraduate classes, 
seminars for small groups of undergraduate or graduate students and 
supervision of a doctoral candidate's research. What is the value of one 
form of teaching as against another? It is not obvious how to rate a faculty 
member's performance in any of his teaching functions with sufficient 
precision to permit accurate and ready comparison with others. Nor is it 
always clear what point or points in time furnish appropriate moments for 
judgment. 

University service and public service are rather cloudy notions. A 
conception of public service limited to something like that suggested 
above — intervention in some public forum on the basis of a scholar's 
expertise in his academic field — would strike many persons as much too 
restrictive. Some disciplines may lend themselves to public service more 
readily than others. A law professor, for example, may have more op- 



AFFIRMATIVE ACTION 195 

portunities to contribute to the public interest, in some conventional 
understanding of the term, than a professor of Sanskrit. Their actual 
contributions, however, may stand in inverse relation to their oppor- 
tunities. What significance attaches to considerations of this kind? 

Many faculty members perform little or no service to the public or to 
the university. Some part ofa faculty is made up of poor teachers, another 
fraction (including, unfortunately, a number of the same individuals), of 
very indifferent scholars. Many professors emphasize different aspects of 
the professor's role at different stages of their careers. It is understood 
that the role of the professor is an abstraction which will not accurately or 
fully describe the behavior of many professors. What is important is that 
the resource the university possesses in its faculty collectively supply the 
university's demands. 

Of course, the requirement ofa Ph.D. degree, where it exists, makes 
up only a part of the over-all selection process. For certain institutions, 
possession of the degree is not, in itself, qualifying. Selection of junior 
faculty is time-consuming and expensive. Many persons who hold the 
degree will not be considered at all, for to consider everyone would entail 
unacceptably heavy commitments of time, effort and expense. Academic 
employers may rely on various clues to eliminate many potential can- 
didates, reducing the number given serious consideration to manageable 
proportions. Prominent among these are the institution (and depart- 
ment) granting the degree and endorsements of teachers respected in the 
field. Theoretically at least, such criteria are not purely arbitrary ration- 
ing devices. On the contrary, they function partly to focus attention at the 
institutions which attract the most able students, identify their academic 
qualities most accurately and provide the best training. Naturally, 
statements of this kind imply a lengthy series of debatable assumptions. 
They easily qualify as "unvalidated selection requirements." Choice 
among the persons who do become serious competitors for a position 
involves institutional judgments which would seem clearly to be pro- 
cedures "other than tests." The objective is to predict which person will 
perform the role of professor so as to contribute most to the discharge of 
the faculty's collective obligation in the foreseeably hkely mix of people, 
resources and responsibilities. In one case, capacity for productive schol- 
arship may almost eclipse performance as a teacher; in another instance, 
teaching ability may count far more heavily. At times, competence in 
particular subfields may be decisive. In every case, judgments will be 
intuitive, discretionary, quite possibly arbitrary; they also may be in- 
formed or expert. They can hardly be validated according to the regula- 
tions, but such judgments may be indispensable to the conduct of the 
enterprise. 

The regulations do provide an alternative to validation. The Testing 
and Selection Order provides that, "if the contractor is unable or unwill- 



196 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

ing to perform such validation studies, he has the option of adjusting 
employment procedures so as to eliminate the conditions suggestive of 
employment discrimination." ^s Examples of such conditions, it will be 
recalled, are "adverse effect" — e.g., "a higher rate of rejection of minor- 
ity candidates than of nonminority candidates for the same job or group of 
jobs" and "underutUization." It would seem that aggressive recruiting 
among women and minority groups might generate adverse effects at the 
same time that it produced equal employment opportunity — enlarging 
the scale of the recruiting effort gives assurance that no qualified minor- 
ity or woman candidate has been overlooked but may operate to bring 
forward many unqualified minority and women applicants. More sig- 
nificantly, to refer to "underutUization" is simply to reenter the same 
circle travelled above in which underutilization depends upon availability 
and availability determinations require validated selection devices. At 
this point, it seems the themes developed in the regulations have reached 
a moment of denouement at which they all stand frozen on the stage 
awaiting the descent of some deus ex machina, which, however, the 
management has unfortunately neglected to provide. No one can tell 
whether equal employment opportunity is present or absent without 
satisfactory standards of merit, but the criteria of merit are cast in such a 
way that no one can say what it is or show who has it and who does not. It 
is understandable that in this setting affirmative action programs would 
be more negotiated than designed against a set of intelligible criteria. 
The regulations fail to address the characteristics of faculty employ- 
ment. Rather, it is insisted that faculty personnel standards conform to 
the regulations. Carried to its logical conclusion, this would imply: sub- 
stitution of objective standards of appointment and promotion to fore- 
close the possibility of biased judgments, subdivision of the professorial 
role to facilitate application of objective standards and enlarge the pool of 
eligible candidates, strengthening of centralized administration to en- 
force adherence to required procedures for selecting academic staff. 
These tendencies conflict with academic traditions of peer review, decen- 
tralized authority and diffused responsibility and integration of functions 
— notably, research and teaching. It is precisely these traditions which 
are widely regarded as central to the academic enterprise. It seems 
unlikely that such a metamorphosis of butterfly into caterpillar will be 
seriously attempted. What seems more likely is that administration of the 
contract compliance program, left to itself, will veer ineffectually be- 
tween de facto quotas and incipient breakdown, caught between the need 
to produce results and the inherent defects of the program's design. 



< 



-"41 C.F.R. S 60-3.13(1973). 



REPORT IN SUPPORT OF RECOMMENDATION 75-^ 

(As published in: Columbia Law Review, 
Vol. 75, No. 1 (January 1975) 

JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE 
ACTION: QUEST FOR THE OPTIMUM FORUM 

DAVID P. CURRIE* AND FRANK I. GOODMAN^ 



T«» 



Introduction 



A. The Issue 



The aim of this Article is to explore the considerations that determine 
which federal administrative actions are best reviewed by the district courts, 
which by the courts of appeals,*** and which by separate courts of admin- 
istrative review. 

This study was commissioned jointly by the Administrative Conference 
of the United States, which has a continuing interest in questions respecting 
judicial review of agency action, and by the Commission on Revision of the 
Federal Court Appellate System, which is particularly concerned with the 
issue as it affects the circuit courts. That Commission, created in response to 
serious warnings that the courts of appeals are overloaded, has heard how the 
press of cases has led to heightened use of summary procedures and to the 
fear that the quality of decision may be impaired. While it is this concern that 
provides the immediate impetus for the present study, it would be a mistake to 
view the matter entirely from the standpoint of the courts of appeals. The over- 
riding goal must be to afford adequate and efficient access to the courts gen- 
erally. At the same time, the condition of all of the courts is a relevant factor 
in assessing the optimum system of judicial review: A review scheme that 
looks good on paper may be a disaster if overloaded dockets seriously impair 
the quality of adjudication. 

In fiscal 1974, 1,994 of the 16,436 cases (12 percent) filed in the eleven 
circuit courts came directly from federal "Boards and Commissions" other 
than the Tax Court. ^ Moreover, in the same year the United States or its 
officers or agencies were parties to over half (7,334 of 13,491) of the cases 
appealed to the circuit courts from the district courts. Many of the.se were 
ordinary criminal cases. Even so, and setting aside proprietary and tax cases, 
it appears that several hundred administrative cases, perhaps nearly a 

* Professor of Law, University of Chicago. A.B., 1957, University of Chicago ; 
L.L.B., 1960, Harvard University. 

** Professor of Law, University of Pennsylvania. A.B., 1954; L.L.B., 1959, Harvard 
University. B.A., 1956, Oxford University. 

*** The United States Court of Appeals will be referred to, interchangeably, as 
"courts of appeals," "appeals courts," or "circuit courts" ; the latter term, though not 
strictly correct, frequently serves the interests of brevity, euphony, or variety. 

1. 1974 Report of the Director of the Administrative Office of U.S. Courts, 
table B3 [hereinafter cited as A.O. Report]. 1 Q7 



198 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

thousand, reach the circuit courts annually through the district courts.^ The 
number of such cases not appealed beyond the district courts is presumably 
a good deal higher. 

Dean Roger Cramton has identified three dimensions of any inquiry into 
what constitutes the optimum in institutions for the resolution of controversies: 
accuracy, efficiency and acceptability.'' By accuracy is meant all those consider- 
ations that contribute to a high quality of decisionmaking: the qualifications of 
the deciders, adequate time for deliberation, and so forth. Efficiency reflects 
the truism that the conditions for quality decisionmaking are not without cost: 
It is also desirable to avoid undue delay, expense, or the extra litigation that 
may be prompted by fuzzy jurisdictional lines or by the uncertainty of sub- 
stantive law. Acceptability embraces the principle that it is important that 
litigants feel they have been fairly treated. We shall bear these dimensions 
in mind in exploring the question of optimum forums for judicial review. 

The result is no blueprint for change. If one concludes from this study, 
or from what we have overlooked, that changes are necessary, additional work 
will be required to flesh out the details. 

B. Patterns of Judicial Review 

At common law, relief against unlawful government action was sought 
in the ordinary courts of first instance. An injured citizen could file for one 
of the prerogative writs — chiefly mandamus, certiorari and habeas corpus — for 
an injunction (and later for declaratory judgment), or for damages in tort 
against the offending officer. A civil or criminal defendant might assert as a 
defense the invalidity of the regulation or other provision upon which the 
proceeding was based, and an offending officer could be prosecuted criminally.* 
In the federal courts, common law certiorari was essentially unavailable,*^ 
and, until recently, mandamus lay only in the District of Columbia.® Federal 
government action could be reviewed in state courts in criminal and damage 

2. Id., table B7. The category of "other" U.S. defendant cases — which does not 
include government property, contracts, torts, or tax cases — numbered 690 in fiscal 1974. 
Social security cases (246) were separately categorized. Related questions are also 
presented in civil or criminal district court proceedings to enforce regulatory statutes. 

Judge Leventhal has testified that appeals from district court rulings in review of 
administrative action "comprise almost all of the so-called 'U.S. Civil' cases component 
of the District of Columbia Circuit's workload," which in turn "is now running 32% of 
filings in 1974." He added: "[u]ndoubtedly, a disproportionate number of such filings are 
in the District of Columbia," despite the Mandamus and Venue Act of 1962, 28 U.S.C. 
§§ 1361, 1391(e) (1970). Statement by Judge Leventhal Before Commission on Revision 
of the Federal Court Appellate System, May 21, 1974, at 13-14 [hereinafter cited as 
Statement of Judge Leventhal]. 

3. Cramton, Administrative Procedure Reform: The Effects of S. 1663 on the Con- 
duct of Federal Rate Proceedings, 16 Ad. L. Rev. 108. 111-13 (1964). 

4. See, e.g., L. Jaffe, Judicial Control of Administrative Action 152-96 (1965) ; 
F. GooDNOw, The Principles of the Administrative Law of the United States 
378-411 (1905). 

5. Degge v. Hitchcock, 229 U.S. 162 (1913). See L. Jaffe, supra note 4, at 166-67. 

6. Kendall v. United States, :i7 U.S. (12 Pet.) 524 (1838), and cases therein cited. 
See generally D. Currie, Federal Courts 541-42 (2d ed. 1975). 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 199 

proceedings/ and by way of defense, but state courts lacked authority to issue 
mandamus* or habeas corpus^ against federal officers or, generally, to try 
federal offenses.^*' 

Judicial review reforms in the states, exemplified by the Model State 
Administrative Procedure Act, often retain the common law principle that 
administrative action is to be reviewed by the ordinary trial courts. ^^ From 
the beginning of this century, however, Congress has frequently deviated from 
this model to provide for review by three-judge trial courts, by the courts of 
appeals generally, by a single court of appeals, or by a more or less specialized 
tribunal. The present statutory scheme is a patchwork of these various tech- 
niques. 

I. District Court or Court of Appeals Review: 
Two-Tier or Single-Tier Structures 

A. Formal Administrative Action 

The Federal Trade Commission Act of 1914 set a pattern for many sub- 
sequent federal statutes in providing for both review and enforcement of 
Commission "orders" not in the trial courts but in the several courts of ap- 
peals. ^^ Among other agencies whose orders bypass the district courts are the 
Power, '^ Communications," Securities'^ and Maritime'® Commissions, and 
the Labor'^ and Civil Aeronautics'® Boards. 

The rationale for the direct-review model, and its appropriateness for 
most, if not all, of the agencies to which it applies, are plain enough. The key 
point is that the district court is unnecessary here because the functions it 
ordinarily performs in the judicial system are either performed by the admin- 
istrative agency itself or are relatively unimportant. First and foremost, a 
court trial need not be held because the record has already been developed at 

7. United States ex rel. Drury v. Lewis, 200 U.S. 1 (1906) ; Teal v. Felton, 53 U.S. 
(\2 How.) 284 (1851). Congress has increasingly allowed the defendant to remove to the 
federal court, sec 28 U.S.C. § 1442 (1970) and predecessor statutes. 

8. M'Clung V. Silliman, 19 U.S. (6 Wheat.) 598 (1821) (dicta). 

9. Tarble's Case, 80 U.S. (13 Wall.) 397 (1872). 

10. See Warren, Federal Criminal Laivs and the State Courts, 38 Harv. L. Rev. 545 
(1924) ; H. Friendly, Federal J uri.s diction: A General View 8 & n.28 (1973). State 
court jurisdiction to enjoin federal officers surprisingly remains unsettled even today 
despite the absence of federal jurisdiction in cases of low dollar value. See Arnold, The 
Po'urr of State Courts to Enjoin Federal Officers, 73 Yale L.J. 1385 (1964) ; 28 U.S.C. 
§ 1331 (1970). 

11. 9C Uniform Laws Annot. 174, 183 (1957), 134, 136, 158 (Supp. 1967). The 
Model Act in earlier or later form has been adopted in at least ten states. See also III. 
Rev. Stat. ch. 110, §268 (1968). 

12. 38 Stat. 717, 719, § 5. The present statute is 15 U.S.C. § 45(c) (1970). 

13. 15 U.S.C. § 7l7r(b) (1970). 

14. 28 U.S.C. § 2342(1) (1970); 47 U.S.C. § 402 (1970). 

15. 15 U.S.C. § 78y (1970). 

16. 28 U.S.C. § 2342(3) (1970); 46 U.S.C. § 830 (1970). 

17. 29 U.S.C. § 160(e), (f) (1970). 

18. 49 U.S.C. § 1486 (1970), which also makes similar provision for orders of the 
Federal Aeronautics Administration (FAA). 



200 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

the administrative level in trial-type hearings conducted by administrative 
law judges in accordance with the Administrative Procedure Act (APA).^^ 
Second, a district court opinion defining and focusing the issues, frequently 
useful to the appellate court in other types of litigation, is superfluous because 
opinions by the administrative law judge or by the agency itself will already 
have served that purpose. Third, the availability of a convenient and relatively 
local point of entry into the judicial system, valuable to litigants of modest 
means in other civil cases, is of much less importance in many areas of admin- 
istrative review where the economic stakes are typically high and the litigants 
well able to bear the costs. Finally, the vital screening role which courts of first 
instance play in holding down the volume of appellate litigation is, once again, 
played here by the administrative process. Only a small fraction of the cases 
processed by most agencies wind up in court, and a high proportion of those 
that do could be expected to reach courts of appeals even if required to pass en 
route through district courts. Tiie efficiency argument is obvious: Assuming 
appeal as of right from district to appellate court, ^"^ bypassing the trial court 
significantly expedites ultimate decision,^^ lessening the burden on both courts 
and litigants. 

Nevertheless, Congress has not invariably placed jurisdiction to review 
record agency adjudication in the circuit courts. Record review of applications 
for old age, survivors' or disability benefits under the social security law, for 
example, is channeled to the district courts by statute.^^ Until recently, the 
same was true of administrative workmen's compensation determinations 
under the Longshoremen's and Harborworkers' Compensation Act.^ Simi- 
larly, in the absence of specific judicial review provisions, assorted other formal 
agency adjudications are afforded review in the district courts. The APA 
makes numerous agency actions reviewable in "a court of competent juris- 
diction, "^^ and only the district courts enjoy grants of general jurisdiction in 
the first instance over mandamus actions^^ or actions arising under federal 
law.^^ Examples of district court record review under general jurisdictional 
provisions include dispositions of mining claims by the Department of the 

19. 5 U.S.C. §556 (1970). 

20. 28 U.S.C. § 1291 (1970). 

21. Sec, e.g., H.R. Rep. No. 1142, 63d Cong., 2d Sess. (1914) (conference decision 
to substitute direct review of Federal Trade Commission (FTC) orders for the thrce- 
judge-district-court procedure passed by the Senate) ; H.R. Rep. No. 1086, 87th Cong., 
1st Sess. (1961) (expedition was the express reason for extending the direct review 
procedure to deportation orders of the Immigration and Naturalization Service (INS)). 

22. 42 U.S.C. §§ 405(g), 421(d) (1970). 

23. 44 Stat. 1424, 1436 (1927). A 1972 amendment, 86 Stat. 1251, 1261, 23 U.S.C. 
§ 921(c) (Supp. Ill 1973), provides for review by an administrative board and then 
by the circuit courts. The House Report gives no reason for the change. See notes 
128-35 and accompanying text infra. 

24. 5 U.S.C. § 703 (1970). 

25. 28 U.S.C. § 1361 (1970). 

26. 28 U.S.C. § 1331 (1970) (subject to a troublesome $10,000 amount-in-controversy 
requirement). 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 201 

Interior and of federal employee discharge cases by the Civil Service Com- 
mission ; both have come under recent attack as time-consuming and out of 
line with the proper Trade Commission model. District court review, it is 
argued, "serves ... no viable purpose. "^'^ The two-tier model assumes that, 
in some classes of federal agency litigation, district court review does perform 
a function important enough to justify the obvious cost and delay of an addi- 
tional stage of litigation. 

In the following analysis we shall examine the two models rather more 
closely, identifying and evaluating the comparative advantages of district and 
appellate courts as forums for record review of administrative action. We begin 
by asking, first, what would be gained and lost by district court review if 
there were no subsequent recourse other than to the Supreme Court on 
certiorari. We frame the discussion in this way not because we believe single- 
tier district court review a viable option, but because we can more easily iso- 
late the relevant features of the two forums by viewing them independently 
rather than in coordination. Second, we compare the two-tier model to the 
single-tier alternatives, assuming a right of appeal to the circuit courts. Third, 
we add to the comparison a two-tier scheme in which appeals court review is 
available only on a discretionary basis. Finally, the general considerations 
which have been set forth are applied to specific agencies that might be thought 
borderline cases. 

1. Single-Tier District Court Revieiu. (a) Appraisal of Advantages. 
In a single-tier scheme, the district court would have three major advantages 
over the court of appeals as a forum for review of administrative action. The 
first is its greater proximity, convenience and, therefore, economy to the pri- 
vate litigant. Appellate courts sit in one or two cities in each circuit, district 
courts in many more ; litigating close to home is presumably less costly. This 
advantage may be of little importance, as we have said, in big cases, especially 
when the agencies themselves are highly centralized. But for the social security 
claimant, the injured longshoreman, the discharged federal worker, access to 

27. Polcover v. Secretary of the Treasury, 477 F.2d 1223, 1225-28 (D.C. Cir. 1973), 
cert, denied, 414 U.S. 1001 (1974) (employee discharge), and cases therein cited. See also 
Johnson & Stoll, Judicial Revieu.' of Federal Employee Dismissals and Other Adverse 
Actions, 57 Cornkll L. Rkv. 178 (1972) ; Strauss, Procedures of the Department of the 
Interior ivith Respect to Mining Claims on Public Lands 170-71 (1973) (Report pre- 
pared for Administrative Conference of the United States, published in 1974 Utah 
L. Rev. 185, 266) : 

Given a formal hearing process within the agency, the results of that process 
should have the consequences normally accorded agency hearings on-the-record: 
a review proceeding brought directly to the United States Court of Appeals in 
which the standard api)lied for review of factual issues is substantial evidence 
upon the record as a whole. District courts have no special expertise or function 
to warrant continuation of the present two-tiered structure for review ; rather, 
they have seemed somewhat at sea, and far from uniform in their approach 
to review .... 
In Polcover, for example, the time spent in the district court was twenty-seven months. 
477 F.2d at 1227. 



202 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

a convenient forum may be thought essential if the expense of Htigation is 
not to swallow the recovery or price it beyond pursuit. "The obvious theory of 
a district court venue," wrote Professor Jaffe, "is that the typical plaintiff is 
a person of modest means. "^^ 

Yet the difference in litigation costs between district court and circuit 
court review should not be exaggerated. More than a third of all civil litigation 
in federal district courts is brought in cities where circuit courts also sit.^* 
For this large category of litigants, the court of appeals is no more costly or in- 
convenient than the district court. Furthermore, many of those who must travel 
to a court of appeals must also travel, though less far, to a district court. The 
ninety-four federal judicial districts (including the Virgin Islands, Puerto 
Rico, Guam, and Canal Zone) — on the average, less than two per state — are 
not "local" in the way the county courthouse is. Finally, in the record review of 
agency action, a court of appeals, even when significantly more distant, is not a 
great deal more costly. A trial is not needed ; witnesses need not be trans- 
ported ; added costs may be limited to a small difference in filing fees^^ and 
to the attorney's transportation, food and, perhaps, lodging costs plus travel- 
time compensation for the single day of oral argument,^* if indeed there is one. 
The increasing use of summary procedures by courts of appeals^^ reduces the 
cost advantage of the district court, as it reduces the quality advantage of the 
appellate court. Thus, while it is incorrect to say that litigating in the circuit 
court "should cost no more,"^^ the saving is not on a grand scale ; we guess it 
to be anywhere from zero to $600.^* 

28. L. Jaffe, siipra note 4, at 158. It was on this ground that the Motor Carrier 
Lawyers Association, speaking for the small trucker, opposed (almost uniquely) tlie 
transfer of Interstate Commerce Conmiission review to the circuit courts. Sec Hearing 
on H.R. 13927 Before House Coinin. on Interstate & Foreign Commerce, 90th Cong., 
2d Sess. 32 (1968). In the Agricultural Adjustment Act, 7 U.S.C. § 1365 (1970), 
Congress carried this policy one step further, providing the farmer aggrieved by his 
assigned production quota with the additional option of a state court forum. See Develop- 
ments in the Laiv: Remedies Against the United States and Its Officials, 70 Harv. L. 
Rev. 827, 906 (1957). The same policy helped induce Congress in 1958 to forbid removal 
of state court workmen's compensation cases, 28 U.S.C. § 1445 (1970), and in 1962 to 
allow mandamus actions to be brought outside the District of Columbia, 28 U.S.C. 
§§ 1361 1391(e) (1970). See S. Rep. No. 1830, 85th Cong., 2d Sess. 6-10 (1958); 
S. Rep. No. 1992, 87th Cong., 2d Sess. 3 (1962). 

29. The data upon which this statement is based are found in 1974 A.O. Report, 
supra note 1, table C3. 

30. Filing fees are $15 in the district court, $50 in the circuit courts, see 28 U.S.C. 
§ 1914 (1970); note following id. § 1913 (Supp. Ill 1973). This difference is not only 
small; it is also not immutable. Since the provision of the federal appellate rules that 
briefs may be produced "by any duplicating or copying process which produces a clear 
black image on white paper," Fed. R. App. P. 32, has been read, at least in the Seventh 
Circuit, to allow xerox copies of typed briefs, there seems no reason to expect a 
difference in printing costs. In any case, such a difference would argue for modifying 
the printing rules, not for dispensing with circuit court review if that appeared other- 
wise desirable. 

31. 5"^^ generally Carrington, Crowded Dockets and the Courts of Appeals: The 
Threat to the Function of Review and the National Law, 82 Harv. L. Rev. 542, 606, 
608 (1969). 

32. 5"^^ note 52 infra. 

33. Johnson & Stoll, supra note 27, at 194 n.89 (1972). 

34. Round- trip coach fare on the less expensive days between Honolulu and Los 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 203 

We must note, too, the possibility that district court review may be 
costlier and less convenient to the Government. Where an agency's cases are 
managed by United States Attorneys in the field, those stationed in cities 
where courts of appeals are located frequently acquire a special competence in 
handling litigation from a particular agency ; to distribute that litigation 
among the district courts would force the Government either to assign cases 
to local federal attorneys who lack that expertise or to pay for circuit-riding 
by those who have it. Much the same applies to agencies that organize their 
attorneys on a regional basis more or less paralleling judicial circuits.^^ Ex- 
pense to the Government, however, cannot alone justify denying private liti- 
gants a convenient forum within their means. If the district court were costlier 
to the Government than the circuit court to the private litigants, efficiency 
might dictate tlie latter as the forum, but fairness would require that the 
private parties be compensated for their travel time and expense.^^ 

The second and more significant advantage of single-tier district court 
review is the conservation of judicial resources: the reduction, by two-thirds, 
of the number of judges required to decide each case. This does not mean a 
commensurate reduction in the number of judge-hours per case. A single dis- 
trict judge cannot handle as many cases in a given time as a three-judge 
appellate panel. Although the panel may perform some judicial tasks in tripli- 
cate, opinion-writing, the most onerous task of all, falls to only one judge per 
case. A recent time survey by the Third Circuit indicates that a judge spends 
roughly half (48 percent) of his case time writing opinions.^^ Half of the 
overall appellate efTort would not be reduced at all by substituting single- 
judge review ; the other half would be reduced by two-thirds ; the overall 
saving of judge-hours would be one-third.^^ 

A third advantage of the district court over tlie circuit court, going both 
to efficiency and to quality, is the greater flexibility with which it can be ex- 
panded to meet rising caseload demands. This flexibility flows from the fact 

Angeles is $253.33 (per United Air Lines information office, Sept. 20, 1974) ; flight time 
is long enough so that the attorney can probably expect to spend a full working day and 
a night in the process. If he charges for eight hours' travel time at $35 per hour, lives 
on the federal $40 per diem, and spends $20 for taxis, we add $340. We have disre- 
garded the cost of traveling to Honolulu from a remote island to make connections, 
since that must be borne to reach the district court too. 

35. Tho.se agencies which handle or supervise their own litigation from Washington, 
or which rely on the Civil Division of the Department of Justice, might have no strong 
preference in terms of cost, but could find it more difficult to maintain centralized super- 
vision if forced to meet the district courts' shorter time periods for response. 

36. Sec Carrington, supra note 31, at 606, 608 n.277. 

37. Federal Judicial Center, 3d Circuit Time Study (November 16, 1972). 

38. An example may clarify: If a circuit court panel requires a total of 30 judge- 
hours to decide one case — 15 for opinion-writing and 15 (as per the Third Circuit time 
study) for everything else — a single district judge would need only 20 hours — 15 for 
opinion-writing and five for everything else. This reckoning ignores the time spent by 
appellate judges in conferring and in writing dissenting or concurring opinions; to that 
extent, it slightly understates the savings accomplished by district court review. Accord- 
ing to the Third Circuit time study, id., the latter functions consume 5.7 percent of the 
appellate judge's case time. 



204 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

that district courts are not expected to maintain consistency among their own 
decisions. The appellate courts, on the other hand, strive not only to resolve 
conflicts of decision within and between districts but also to maintain harmony 
among their own decisions through en banc procedures that become both 
costly and awkward when too many judges are involved. The essential differ- 
ence, as Judge Friendly has explained, is that the appellate courts are intended 
to be far more collegial.^^ In testimony before the Commission on Revision of 
the Federal Court Appellate System, judges have vigorously argued for 
limiting the courts of appeals to nine members, a number already equalled or 
exceeded in several circuits.'*" If we assume that these courts cannot be 
further enlarged, it becomes clear that, even if the basic cost of judge-time 
were the same at both levels, a given volume of cases could more seriously 
impair the quality of adjudication in the courts of appeals than in the district 
courts. This is not to say that enlargement of the district courts through the 
appointment of additional judges is altogether painless. The larger the court 
the more difficult it becomes to administer it efficiently and to preserve a 
semblance of uniformity in its rulings. But once a sufficient diversity of view- 
point and attitude is represented, additional judges are not likely to increase 
very much the risk of disuniformity or unequal justice. The fourth advantage 
of the district court is its superiority on occasions when, despite the existence 
of an administrative record, evidence must be taken. Sanctions for the viola- 
tion of National Labor Relations Board (NLRB) orders, for example,*' 
depend not only upon the validity of the order, which can be determined from 
the agency record, but also upon proof of its later violation, which was not in 
issue before the Board. Similarly, the propriety of interim relief against either 
an order or its violation pending judicial review*^ may depend upon facts 
respecting the balance of hardships that are outside the agency record.*^ 

39. H. Friendly, supra note 10, at 29-31, 40-46 (1973). 

40. Sec Digest of Testimony Received by the Commission on Revision of the Federal 
Court Appellate System in Connection with Hearings Aug.-Sept. 1973 (Statements of 
Chief Judge Seitz on behalf of the Third Circuit judges; Statement of Judges Gewin. 
Morgan, Clark, Coleman, (jodbold, Dyer, Simpson and Bell). 

41. 29 U.S.C. § 160(e) (1970). 

42. See, e.g., 29 U.S.C. § 160(e), (f) (1970), authorizing temporary relief when 
review or enforcement is sought of an NLRB order. General authority of the same nature 
is conferred by the All Writs Act, 28 U.S.C. § 1651 (1970) ("all writs necessary or 
appropriate in aid of their respective jurisdictions"). 

43. We do not view the erstwhile constitutional requirement of a judicial "trial de 
novo" of certain "jurisdictional" or "constitutional" facts found on the record by ad- 
ministrative agencies, see, e.g., Crowell v. Benson, 285 U.S. 22 (1932), as presenting 
additional occasions for evidence-taking in the circuit courts. This doctrine has been in 
serious decline in the last several decades, see 4 K. Davis, Administrative Law Treatise 
156-61 (1958); JafFe, Judicial Revieiv: Constitutional and Jurisdictioyial Fact. 70 Harv. 
L. Rev. 953, 973 (1957). Moreover, if the requirement has any vitality at all, it seems 
likely it will be satisfied by a judicial redetermination of the facts on the basis of the 
agency record; Crowell itself spoke repeatedly of the need for an independent judicial 
"determination." The power to remand to permit additional evidence and the autliority to 
ignore administrative findings seem fully to assure complete judicial control of any 
administrative proceeding. Congress seems to share our conclusion that no judicial trial 
is necessary under Crowell, for it recently transferred review of longshoremen's injury 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 205 

Taking oral testimony in open court is a highly inefficient procedure for three 
judges;'** if the incidental functions of enforcement and interim relief imposed 
the burden of conducting extensive trials in any substantial percentage of cases, 
the desirability of direct review would be questionable. 

There may be no wholly satisfactory solution to the problem of incidental 
factfinding in contempt or interim-relief proceedings in courts of appeals. 
Sending these issues back to the agency*^ or to a master*® can cause delay,*^ 
and the former gives rise to objections that the agency is made judge in its 
own cause.*^ Sending parties to the district court for interim relief*^ or to 
enforce orders reviewable in the court of appeals^** splits what might be thought 
a single case between two forums, with varying risks of duplication, conflict, 
expense and delay. 

cases such as Crou'ell itself from the district courts to the courts of appeals. See note 
23 supra. 

44. Sec, e.g., NLRB v. Dell, 309 F.2d 867, 869 (5th Cir. 1962). On occasion the 
courts of appeals have themselves heard oral testimony. E.g., NLRB v. Lambert, 250 
F.2d 801 (5th Cir. 1958). Sec also NLRB v. Int'l Ladies Garment Workers Union, 36 
CCH Lab. Cas. ^ 65,365 (3d Cir. 1959) (granting temporary relief against a refusal 
to bargain upon finding irreparable harm on the basis of oral testimony, affidavits and 
argument). 

45. See, e.g., NLRB v. Retail Clerks Int'l Ass'n, 203 F.2d 165 (9th Cir. 1953). Cf. 
III. Ann. Stat. ch. IIOA, § 335(g) (Smith-Hurd Supp. 1974) (requiring prior applica- 
tion to the Pollution Control Board to stay its own orders) ; Fed. R. App. P. 8 (requiring 
prior application to a district court to stay its judgment or for interlocutory injunction). 

46. Sec, e.g., NLRB v. Giannasca, 119 F.2d 756 (2d Cir. 1941); NLRB v. Little 
Rock Furniture Mfg. Co., 123 F.2d 868, 871 (8th Cir. 1941); NLRB v. Red Arrow 
Freight Lines. Inc., 193 F.2d 979 (5th Cir. 1952). 

47. Sec NLRB v. Giannasca, 119 F.2d 756, 759 (2d Cir. 1941) (Clark, J., concvirring) 
(reference to master caused year's delay) ; Note, The Role of Contempt Proceedings in 
Enforcing Orders of the NLRB, 54 Colum. L. Rev. 603, 615 (1954) (two years for re- 
mand to Board in NLRB v. Retail Clerks Int'l Ass'n, 203 F.2d 165 (9th Cir. 1953) ; 
six years for master in NLRB v. Weirton Steel Co., 146 F.2d 144 (3d Cir. 1944)). Some 
time can be saved by directing the agency or master simply to take evidence and not find 
the facts; this procedure also helps to preserve the ultimate authority of the court by 
avoiding deference to a subordinate trier of fact. 

48. See Wallace Corp. v. NLRB. 159 F.2d 952 (4th Cir. 1947) ; id. at 957 (Soper, 
J., dissenting). It is not clear that the argument has more force here than when the 
agency enters the original order. See L. Jaffe, supra note 4, at 303-06 (1965). Having 
the facts as to violation determined by the expert agency reduces the risk of error or of 
conflict between agency and court as to the legality of the same conduct. See NLRB v. 
Giannasca, 119 F.2d 756, 759 (2d Cir. 1941) (Clark, J., concurring) ; Bartosic & Lanoff, 
Escalatimi the Struggle Against Taft-Hartley Contemnors, 39 U. Chi. L. Rev. 255, 289 
(1972) ; L. Jaffe, supra note 4, at 307-08. 

49. It is perhaps because of the awkwardness of appellate trials that, despite circuit 
review of final NLRB orders, the statute authorizes only the district courts to grant 
temporary injunctions against alleged unfair labor practices while the Board considers 
the merits, 29 U.S.C. § 160(j), (/) (1970). In the absence of a specific provision for 
district court relief before entry of a Board order, the Supreme Court has upheld in- 
terim relief by the circuit court under 28 U.S.C. § 1651 (1970), in order to protect its 
future jurisdiction. This procedure requires the circuit courts to find the facts for them- 
selves although, in contrast to requests for interim relief after entry of a final order, the 
matter is not pendent to a review proceeding already properly in the appellate court. 

50. E.g., III. Ann. Stat. ch. IIIK, §§ 1041-42 (Smith-Hurd Supp. 1974) (Environ- 
mental Protection Act). FTC orders may be enforced either by district court action or, 
if they have been reviewed and ordered enforced, by a contempt i)roceediTig in the 
circuit court. 15 U.S.C. § 45(c) (1970); id. § 45(/) (Supp. Ill, 1974); see United 
States v. Bostic, 335 F. Supp. 1312 (D.S.C. 1971) (district court); In re Holland 
Furnace Co., 341 F.2d 548 (7th Cir. 1965) (circuit court). 



206 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

But one should keep the seriousness of the problem in perspective. The 
reported cases do not suggest that the courts of appeals are suffering greatly 
from the need to find facts in such proceedings. Given the time pressures sur- 
rounding applications for interim relief, we suspect the facts are normally pre- 
sented by affidavits, which are no special problem for three judges to handle, 
or in a very brief and thus not terribly burdensome hearing. NLRB contempt 
cases, those in which the fact problem has been most prominently discussed, 
have been quite infrequent. ^^ If the countervailing advantages of court of 
appeals review are considerable, the delays of an occasional remand or the 
dangers of bifurcated review may be an acceptable price to pay. 

(b) The Superior Characteristics of Courts of Appeals. Against the 
greater economy and convenience of the district court forum must be weighed 
the great advantages of review in the courts of appeals: its capacity, or per- 
ceived capacity, for superior decisionmaking and its ability to develop and 
maintain a uniform and coherent case law for a large geographical area. The 
qualitative superiority, if it exists, can be attributed to three principal consid- 
erations. First, and by far the most important, is the multi-member composition 
of the appellate court. The process of collegial decisionmaking tends to coun- 
teract bias, subjectivity and incompetence. The need to persuade colleagues, 
and the opportunity to be persuaded by them, bring r'^ason to the fore and 
subordinate considerations that cannot be defended in argument. Moreover, if 
one in three members of a district bench is inept, one in three cases will be 
decided ineptly ; in a court of appeals, ineptitude would more often be outvoted. 
Besides, multi-judge review helps to minimize the extent to which litigative 
outcomes are determined by "the luck of the draw," the fortuities of judicial 
assignment. The decision of a panel of three judges chosen from a bench of 
nine is far likelier to be representative of the views of the whole court than 
a decision by one of twenty district judges. Nowhere is this value more im- 
portant than in the review of certain types of administrative action, where 
outcomes so frequently reflect, in subtle ways, the philosophy and public policy 
preferences of the judge. 

A second element of superiority is the suppo.sed overall higher caliber 
of the appellate bench. Because of its greater rarity, superior authority, wider 
territorial jurisdiction, and consequent prestige, a seat on the appellate bench 
attracts men who would not accept a district judgeship. Furthermore, district 
judges are recruited almost exclusively from the ranks of the trial bar, whereas 
appellate judges are drawn from the profession as a whole and, at least in 
theory and to a considerable extent in practice, from the best of the district 
judges. 



51. See Bartosic & Lanoflf, supra note 48, at 256-58. Only 164 contempt cases had 
been brought as of 1971 for an average of five cases per year, with a high of 23 in all 
circuits in 1969. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 207 

Third, apart from the quahfications he brings to the bench, the appellate 
judge is better equipped by his judicial experience as a whole for the task of 
reviewing administrative action. Evaluating the decisions of other judges is 
his daily business. Trial judges, on the other hand, are more accustomed to 
exercising discretion,. less accustomed to reviewing its exercise, less practiced 
in applying a standard of adjudication that requires them to defer and, there- 
fore, more prone to substitute their judgment for that of the responsible ad- 
ministrative official. This contrast, we suspect, is somewhat overdrawn. 
District judges, though unaccustomed to passing upon prior judicial action, 
are regularly called upon to decide whether evidence is or would be sufficient 
to support a jury verdict, and the thought process required for that determina- 
tion is not very different from that required in reviewing the findings of a 
lower court or an administrative agency. A more important difference, we 
think, is that a circuit court judge has greater opportunity than a district 
judge to familiarize himself with the substantive law of taxation, labor rela- 
tions, securities regulations, and so on. One of thirty district judges in a 
circuit can expect to hear no more than 3 percent of the total caseload in any 
field ; one of nine appellate judges will hear 33 percent of that caseload. It is 
no wonder that practitioners so frequently complain of the difficulty of making 
district judges understand the complexities of their particular specialty. A re- 
lated difference is that appellate judges are more accustomed to deciding, and 
writing opinions on, questions of substantive law than district judges, who 
spend the greater part of their time conducting trials and ruling on procedural 
questions and who rarely write opinions of any great length. 

A reservation must be entered, however. The quality advantage of the 
court of appeals, like the efficiency advantage of the district court, is weakened 
by the increasing practice of the former of deciding cases without oral argu- 
ment or written opinion. ^^ Indeed, where such summary procedures are used, 
it might well be argued that the advantage is reversed. A litigant, given 
a choice, might reasonably prefer to have his case decided by a single district 
judge who offered him an opportunity to be heard in person in support of or 
in opposition to a motion for summary judgment rather than by an appellate 
panel that denied that opportunity. 

Whether or not the circuit court is in fact the superior forum, it is clear 
that most litigants, both private and governmental, believe it to be and would 
not readily accept the district court as a substitute. Indeed, it is fair to say 



52. For a comprehensive description and analysis of the practice, see Haworth, 

Scrcrniiu/ and Summary Procedures in the United States Courts of Appeals, 1973 Wash. 
U.L.Q. 257. See also Bernard G. Segal, The Case for Preserving Oral Argument in the 
United States Courts of Appeals, speech to the American College of Trial Lawyers, 
March 19, 1974. In fiscal year 1972, of 12,455 cases decided (less consolidation), 3,918 
(31.5 percent) were disposed of without oral argument or submission on briefs, 8,987 
(72.2 percent) without signed opinion, and 4,995 (40.1 percent) without any written 
opinion. 1972 A.O. Report, supra note 1, table 12, at 104. 



208 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

that judicial review by a federal court of more than one judge has come to be 
looked upon as a matter of basic right in all cases, civil and criminal, adminis- 
trative and nonadministrative. If the litigant who loses in a district court 
trial is entitled to review by a circuit court, would the loser before a mere ad- 
ministrative body settle for less? This sense of entitlement, whether or not 
justified, reinforces the objective considerations favoring appellate review. ^^ 

Another argument often made in favor of appellate review of administra- 
tive action is that it would be unseemly and demeaning for a single district 
judge to set aside the decisions of an expert administrative agency, especially 
one that itself is multi-membered. Nor is the point solely one of protocol: The 
risk of error is especially high when the judgment of one prevails over that of 
many. The argument from seemliness, however, applies less strongly to some 
agencies than to others. It applies full force to the great independent regulatory 
commissions whose members are appointed by the President with congressional 
approval and enjoy a secure, if limited, tenure. The element of indignity 
dwindles, however, when the agency is of lesser stature — for example, the 
Board of Immigration Appeals in the Department of Justice or the Appeals 
Council within the Department of Health, Education and Welfare (HEW), 
both quasi-judicial tribunals created and terminable by departmental regula- 
tions, and staffed by members appointed and removable at will by the respective 
heads of their departments ; or even the Benefits Review Board in the Depart- 
ment of Labor, a statutory body, to be sure, but otherwise not very different 
from the other two. 

Whether the superior decisionmaking ability of a three-judge tribunal 
would alone justify its added cost — and, in the case of the court of appeals, 
the reduction of collegiality brought about by the need for increased member- 
ship — is a complicated question. At the outset, it should be emphasized that 
the greater likelihood that an issue or controversy will be decided correctly by 
three heads than by one is not generally deemed a sufficient reason for com- 
mitting it to three judges. Decision in the first instance is nearly always en- 
trusted to a single judge, most of whose determinations (not only on questions 
of specific facts, but also on questions of inference, interpretation, discretion, 
remedy, and so on, are subject to narrowly limited review, assuring that the 
one judge will not be second-guessed by the three unless he goes egregiously 
wrong. Moreover, the use of multi-judge panels for the review of district 
court decisions in ordinary civil and criminal litigation does not necessarily 
imply a societal judgment that correction of egregious error is a more im- 
portant or demanding function than initial decision, or so important or de- 

53. The litigants' preference for a multi- judge forum, however, cannot be decisive 
so long as the added costs of such first-class justice are not borne by the litigants them- 
selves through fully compensatory user fees. Of course, a party prefers a better tribunal 
if he can get it for nothing. If they had to pay their way, many consumers of judicial 
services, at least in some types of litigation, might well opt for the small economy size. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 209 

manding as to justify the additiotial costs of multiple judges. The plurality 
of appellate judges can be sufficiently explained by two other factors: the 
unseemliness of letting a single judge undo the work of another ; and their 
responsibility not only to correct error in the particular case, but, more im- 
portantly, to maintain a coherent body of law over a broad geographic area — a 
duty which does justify, and perhaps demand, a premium brand of adjudica- 
tion. 

Whether the correction of egregious error would alone justify the costs 
of multi-judge review may well vary according to the nature of the case. 
First, the greater the significance of the matter to be decided, the more re- 
sources society may be justified in spending in an effort to decide it correctly. 
An investment of judicial time that might seem indispensable in passing upon 
Power Commission rates for a whole new gas field, for example, might appear 
an inexcusable luxury in determining the ownership of a bicycle. Similarly, 
the difficulty of the case may be relevant to the appropriate investment of 
judicial resources. The advantages of a highly qualified, multiple-judge panel 
may be especially important in cases where the technical difficulty of the ques- 
tions enhances the risk of error. 

The importance one attaches to the advantages of a multi-judge court 
for the correction of error will take on significance when we evaluate two-tier 
review. But for purposes of comparing systems of single-tier review, the 
decisive advantage of the court of appeals is its capacity to develop and main- 
tain a coherent, reliable and uniform case law for a fairly large geographical 
region. As suggested earlier, the importance of correctly deciding legal issues 
that transcend the particular case argues strongly in favor of providing a first- 
class forum. Moreover, apart from the quality of decision, the very freedom 
from cumbersome en banc procedures that gives the district courts significant 
advantages in terms of ability to accept additional workloads disables them, 
whether their judges sit singly or in threes, from performing the lawmaking 
function. As courts of first instance, those in heavily populated areas inevitably 
have large caseloads which necessitate too many judges to be able to achieve 
even district-wide, let alone circuit-wide, uniformity. At best, single-tier dis- 
trict court review would settle legal issues one district at a time, leaving the 
law uncertain elsewhere in the circuit and promoting litigation. At worst, it 
would generate a host of inconsistent decisions within and between districts, 
unresolvable short of the Supreme Court, which has difficulty finding time 
even to iron out conflicts among eleven circuit courts. It would be bad enough 
that interdistrict conflicts would result in unequal treatment of parties simi- 
larly situated. It would be intolerable that conflicts within a single district 
would make it impossible to determine the legality of conduct at the all- 
important planning stage. Single-tier district court review is, therefore, 



210 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

simply unthinkable; only the court of appeals, with its broad territorial juris- 
diction and with judges few enough to keep in step with one another, can 
maintain a tolerable degree of uniformity. 

The advantages of the district court — convenience, judicial economy and 
flexible membership — are all possible only because we do not look to it for 
uniformity. It is the need for uniformity of decision over a wide geographic 
area that prevents the circuit courts from becoming conveniently "local" 
forums and, by placing a ceiling upon their membership, makes them vulner- 
able to caseload pressures that threaten the quality of adjudication. And it is 
also the need for uniformity (along with desire for quality and fear of unseem- 
liness) that accounts for the use of expensive multi-member panels; deciding 
singly, appellate judges would generate too many conflicts for feasible resolu- 
tion en banc. In sum, the achievement of uniformity carries a price tag. but 
clearly an acceptable one. 

2. Mandatory Two-Tier Review: Appeal as of Right. Having assessed 
the relative advantages of circuit court and district court review on the assump- 
tion that each were to be terminal, subject to Supreme Court certiorari, we 
can now move to the more practical comparison between direct court of appeals 
review and a two-tier system in which district court orders are appealable, 
either as of right or with leave, to the circuit courts. First, we shall examine 
"mandatory two-tier review" (appeal as of right) ; in the following section, 
we shall add "discretionary two-tier review" (leave to appeal) to the com- 
parison. 

(a) Two-Tier or Direct Court of Appeals Review. The critical advantage 
of mandatory two-tier review over single-tier district court review is that it 
provides a mechanism for the resolution of inconsistencies within and between 
districts and for the achievement of circuit-wide uniformity. This benefit is not 
without considerable cost in those cases where appeals are taken, but the 
price is undoubtedly worth paying in order to avoid the intolerable discordance 
and uncertainty that would result, in nearly all areas of administrative review, 
if there were no recourse beyond the district court. 

The more difificult problem is to justify mandatory two-tier review as 
against direct circuit court review. In every case eventually appealed to the 
circuit courts, interposition of the district court substantially increases the 
cost of litigation and delays the resolution of the controversy. These costs 
are difficult to quantify with any confidence. The litigant must pay double filing 
fees and brief reproduction costs, and must transport his attorney to two 
courts instead of to one. He must also pay for extra work by his lawyers 
(though presumably much less efTort is required to prepare for a second appeal 
on essentially the same questions). The indirect costs of the added delay, both 
to the particular parties and to the system, are more elusive. Delay may induce 
parties to settle on terms less just than would be imposed by a court decision ; 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 211 

it may cause deterioration of evidence that must be used if there is a retrial ; 
similar cases may have to be litigated until the disputed point of law is 
settled ; it also increases the harm done by a challenged practice or by its 
temporary restraint during the period of litigation. ^^ 

Nor are the disadvantages of two-tier review limited to those cases in 
which appeals are taken. Perhaps the most unfortunate consequence of adding 
the district court stage is tliat it prices the appeals court beyond the reach of 
many litigants. The party who loses in the district court may stop at that point, 
not because he is satisfied or even resigned, but because he is exhausted. 
When that occurs, the objection is not only that the exhausted litigant has 
been denied access to a superior forum, as under a single-tier district court 
system, but that he has effectively been excluded from a superior forum that 
is available to more affluent litigants. Further, if the cost of another appeal 
is sufficiently great in comparison to the stakes in an entire class of cases, in- 
terposing the district court could create substantial disuniformity. 

Four countervailing advantages might be claimed for two-tier review, 
three of them carrying little weight. First, whereas in other areas of litiga- 
tion an appellate court can profit greatly from a lower court opinion focusing 
the issues, weighing the opposing arguments and pinpointing relevant portions 
of the record, that advantage is minimal in the review of on-the-record admin- 
istrative action, where even without a district court opinion, the court of ap- 
peals has the benefit of at least one, and often two, formal opinions below — by 
an administrative law judge and by the agency head (or heads). The district 
court, we might add, is in no better position than the appeals court to evaluate 
the administrative record and findings ; it applies exactly the same standard 
of review, and performs an essentially duplicative function. ^^ Second, the dis- 
trict court, as we have already observed, is closer and cheaper ; sometimes 
that may matter. If there are some for whom two-tier review prices the appeals 
court beyond reach, there may be others for whom the alternative approach 
prices judicial review itself beyond reach. Others, though able to afford the 
appeals court, miglit nevertheless prefer the cheaper forum, and doubtless many 
more would if required to bear the full cost of multi-judge adjudication.^® But 
since, as suggested above, the added costs of court of appeals review are apt 
to be slight and, in any event, the litigant will find his district court triumph 
cheaper only if the Government chooses not to appeal it, we do not think dis- 
trict court convenience a weighty argument. Third, while initial district court 
review of record agency decisions would admittedly eliminate factfinding diffi- 
culties incident to circuit court enforcement or interim relief, we cannot be- 



54. On the evils of delay, see H. Zeisel, H. Kai.ven & B. Buchholz, Delay in the 
Courts (1959). Sec also CarriiiKtoii. suf>ra note .31, at 554. 

55. Poicover v. Secretary of Treasury, 477 F.2(l 1223, 1226-27 (D.C. Cir. 1973). cert, 
denied, 414 U.S. 1001 (1974). But see Nickol v. United States. 501 F.2d 1389, 1391 (10th 
Cir. 1974). 

56. See note 53 and accompanying text supra. 



212 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

lieve, for reasons indicated above,^" that these occasional difficulties are serious 
enough to justify the resulting waste of resources and the impaired quality of 
adjudication. 

The only really important justification for two-tier review is the possibil- 
ity that a great many cases will not be appealed beyond the district court and 
the appellate courts will be relieved of a significant part of their workload. 
Just how low the appeal rate (the percentage of district court decisions ap- 
pealed to the circuit courts) must be in order to make two-tier review worth- 
while is difficult to say. More could be said if the sole objective were to mini- 
mize the amount of judge-time required for the review of formal administrative 
action. Earlier v^e estimated that a court of appeals decision might require 
about three judge-hours for every two required by a district court decision. 
On that assumption, a 10 percent appeal rate would yield a reduction of more 
than 20 percent in overall expenditure of judge time, and a rate of about 30 
percent would be the "break-even" level at which the amount of district-judge- 
time exactly equalled the reduction in appellate-judge-time. ^^ 

The number of judge-hours required for the review of an administrative 
action is not, however, the only appropriate measure of judicial efficiency for 
our purposes ; accordingly, a favorable appeal rate may not be a necessary 
condition for the adoption of two-tier review. We have already seen that the 
courts of appeals are a scarce resource, less easily expanded than the district 
courts; hence, a measure that reduces the pressure on them might be justified, 
even though the overall demands upon the judicial system as a whole were 
thereby increased, if the alternative seriously impaired the collegial nature 
of the appeals courts. Thus, even if the appeal rate were much higher than 
the break-even level, the absolute number of cases filtered out of the circuit 
courts might still be great enough to justify a more-than-equal increase in 
judge-time at the district court level. 

We need hardly add that a low appeal rate, if not a necessary condition 
for two-tier review, is also not a sufficient condition. The very considerable 
disadvantages in terms of cost and delay to some litigants, and effective denial 
of court of appeals review to others, must be carefully weighed against any 
savings to the judicial system, and these savings must be substantial. An anal- 
ogy may help to put the issue in perspective. Routing review of record admin- 
istrative action initially to the district court has much the same advantages and 

57. See notes 41-51 and accompanying text supra. 

58. Using the estimated ratio between district judge and circuit court time (2:3) 
developed at note 38 and accompanying text supra, a single district judge would invest 
10 units of judge time in deciding 10 cases; if there were direct review three circuit 
judges would invest 15. Appeal in one case in 10 would add one and a half more units 
(diminished to the extent that the appellate court relies upon the opinion below) ; appeal 
in three in 10 would add four and a half. These crude estimates are meant merely to be 
suggestive; any proposal for legislative action or inaction should be supported by 
statistical information expertly collected and expertly analyzed. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 213 

disadvantages as the insertion of a new single-judge court between district 
court and circuit court in ordinary civil and criminal cases, which we doubt 
many would find desirable. ^^ Tlie comparison may suggest that two-tier admin- 
istrative review, even in the less important cases, ought to be viewed not as 
an ideal but as a possibly unavoidable evil. 

The relevant search, then, is to identify readily definable categories of 
administrative cases whose diversion to the district courts in the first instance 
would spare courts of appeals a burden of decision that threatens their ability 
to function as collegial bodies, or, less compellingly, that is not worth their 
time. In any event, in order to minimize the countervailing costs, two-tier 
review should be applied first to those categories of cases generally simple or 
trivial enough to be least deserving of the effort of three judges. ^"^ 

3. Discretionary Two-Tier Review: Appeal by Leave. We have thus far 
assumed that appellate court review, whether direct or indirect, would be 
available as a matter of right. The alternative, a two-tier system in which 
leave to appeal from district court decisions would be granted or denied by 
the court of appeals on a discretionary basis, deserves investigation. 

A proposal to this effect was made by Judge Friendly in his Carpentier 
lectures: 

[W]here review of administrative action lies in the district court and 
that court has afifirmed, appeal should be only by leave of the court of 
appeals. The argument would be that it is enough to grant an ag- 
grieved citizen one judicial look at the action of a disinterested gov- 
ernmental agency, unless a superior judicial body believes the case 
presents a problem going beyond a particular instance. ^^ 

Under Judge Friendly's proposal, district court decisions adverse to the ad- 
ministrative agency would continue to be reviewable as of right ; only for the 
private litigant would review be conditional. Arguably, such a scheme would 
meet the crux of the objection that it is unseemly for a single judge to reverse 
with finality the decision of a high-status multi-member board. The unseemli- 
ness, perhaps, lies not in district court review per se but merely in giving a 
district court final say when it reverses an agency. The very considerations — 

59. On this possibility, sec H. Friendly, supra note 10, at 430: "One regards with 
horror what might be considered still another tier of courts, with the attendant delay 
and expense." 

60. Case-by-case determination of the appropriate forum would make for maximum 
precision at the cost of a considerable sifting burden and delay ; we would not recommend 
it. A jurisdiclional-amount requirement for direct review would help to strain out cases 
of little immediate significance, but would inhibit ultimate court of appeals resolution of 
the important legal questions that may often arise in the smallest cases. Moreover, despite 
years of precedents, such a requirement might result in wasteful jurisdictional litigation, 
and administrative decisions concerning such matters as deportation or union election do 
not lend themselves to ready translation into money equivalents. See generally D. Currie, 
supra note 6, at 504-43. Thus, even though the present statutory practice of prescribing 
the reviewing forum according to easily administrable categories bears only a rough 
correspondence to the relevant policies, we think it the most promising approach. 

61. H. Friendly, supra note 10, at 176. 



214 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

the expertise, stature and multiple membership of the agency — ^that weigh 
against finality for the district court when court and agency disagree, arguably 
weigh in favor of finality when court and agency concur. Equality of access 
between litigants, needless to say, cuts against any such distinction and 
would argue for putting both parties to the hazard of discretionary review. 

Another important variable is the standard to he used in accepting or 
rejecting cases. At one extreme, leave to appeal might be granted only in 
cases involving important issues of law. or intracircuit conflicts, or. possibly, 
large immediate stakes. At the other pole, all but patently frivolous appeals 
might be accepted. An intermediate approach would grant review not only 
in the important cases but also in cases of patent error below. 

(a) Appraisal of Advantages. The advantages of mandatory two-tier re- 
view over direct review in the courts of ai)peals, it will be remembered, depend 
upon the expectation that losing parties in the district court will often decide 
not to take a further appeal. Discretionary two-tier review allows us to in- 
crease those advantages by artificially depressing the rate of appeal. Thus, in 
a field where the high frequency of expected appeals would obviate any sub- 
stantial economies from mandatory two-tier review, making appeals discre- 
tionary might make interposition of the district court worthwhile. Similarly, 
in fields where mandatory two-tier review does produce significant economies, 
there may still be a substantial burden on the courts of appeals that discre- 
tionary review could further lessen. 

Discretionary review, however, would require in every appealed case a 
determination now required in none: whether to grant or deny leave to appeal. 
The added burden of this preliminary screening must be weighed against 
whatever savings might be gained through obviating a decision on the merits 
in those cases where leave to appeal is either not requested or is denied. Those 
savings are, in turn, suspect in view of the increasing tendency of appellate 
courts to decide "easy" cases by summary procedures that dispense with 
formal opinion and oral argimient. If leave to appeal were denied only in 
patently unmeritorious cases, the number of applications for review would not 
be greatly reduced ; a high proportion of them would be granted ; and nothing 
would be gained even in leave-denied cases, since nearly every such case would 
be one which, on the merits, would be decided summarily, and since the decision 
whether to grant or deny leave would involve virtually the same judicial 
thought process as the decision on the merits. If, on the other hand, leave were 
granted only in cases presenting an important issue of law, and were rigor- 
ously denied even in potentially meritorious cases not presenting such an 
issue, the savings could be more substantial. Fewer applications for leave would 
be filed ; fewer of them would be granted : fewer of those denied would, if 
decided on the merits, be dealt with by summary procedures ; and the thought 
process in deciding whether to grant or deny leave would be more abbreviated 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 215 

than that required for decision, even summary decision, of the merits. Fishing 
through 4,000 annual certiorari petitions may be a whale of a job for the 
Supreme Court, but it is surely paltry in comparison to deciding all those 
cases on the merits. 

There are some who would prefer discretionary review to wholesale use 
of summary decision procedures, even if it were not more efficient. Their posi- 
tion is that oral argument is often an essential input, even in cases that at 
first may appear open-and-sliut ; that an opinion setting forth reasons is an 
obligation of the judicial ofifice : and that a decision dispensing with both is 
no proper decision at all. Rather than pretending to decide the merits and, in 
the process, elevating an unreviewed district court decision to the status of a 
circuit precedent binding on other district judges, the court of appeals should, 
like the Sujjreme Court, sim];)ly decline to review — an action supposedly hav- 
ing no precedential importance. If the courts of api)eals behaved as if appeals 
were discretionary, surely it would be preferable to legalize and properly label 
what they are doing. But it is not wholly true that the appeals courts are treat- 
ing review as discretionary ; a cursory review of the merits is better for the 
parties than no review at all. The significant argument for discretionary re- 
view, for our purposes, is judicial economy. 

(b) Appraisal of Disadvantages. The disadvantages of discretionary re- 
view are immediately obvious and weighty. To a greater degree than with 
mandatory two-tier review, the appeals court would be removed as a forum 
for the correction of error and bias. In every run-of-the-mill case, a lone dis- 
trict judge would have final say. It is serious enough to exclude litigants from 
the superior forum l)y raising the price of admission ; it is more so, especially 
in the important sense of ai)pearances, to refuse admission at any price. The 
agencies themselves, assuming they, too, had no automatic right to review, 
might be persuaded to live with such an arrangement if satisfied that the 
circuit courts would be open to them in the cases that really mattered. For 
the ordinary private litigant, however, to whom the "routine" case is anything 
but routine, denial of recourse beyond the district court might be harder to 
swallow, especially if it were denied (as it would have to be) only to a very 
few classes of litigants. 

Discretionary two-tier review also has the further disadvantage of added 
cost and delay for litigants. However much or little it may conserve the re- 
sources of the judicial system, discretionary review would do nothing to 
conserve the resources of the parties. If the screening procedure used by the 
courts of a])peals were modeled on the Supreme Court's certiorari procedure, 
the appellant would have to file not one but two briefs- — first, a petition for re- 
view arguing the "certworthiness" of the case, and, if that were successful, a 
full brief on the merits. The price of admission to the court of appeals would 
thus be significantly increased. It is possible that the appeals courts would not 



216 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

choose to i)attern their screen on Supreme Court certiorari ; instead, they might 
simply require a single brief presenting both reasons for granting leave and 
tlie merits. If so, legal fees would not be appreciably different than under man- 
datory review, but petitioners denied leave would get much less for their 
money. 

The cost factor, however, is probably less important than the factor of 
delay. The discretionary approach, by sandwiching an additional stage of de- 
cision between district court and plenary appellate review, would inevitably 
prolong the process of judicial review of the particular agency action in- 
volved. To be sure, the delay would be mitigated in part by the time saved 
through reduction of the appellate courts' on-the-merits caseload. And for 
litigants generally, the process of judicial review would be shortened, not pro- 
longed : that follows from our assumption that discretionary review would 
result in an overall net saving of time for the courts of appeals. But while the 
benefits thus obtained would be shared by all circuit court litigants, the burden 
of delay would be borne exclusively by litigants in the particular categories to 
which the leave-to-appeal procedure was applied. Members of that class would 
be worse ofif, and could fairly claim discrimination, whether denied appellate 
court review or merely forced to wait longer and pay more for it than others. 

In short, for the appellant who is denied leave or discouraged from seeking 
it, discretionar}- two-tier review has nearly the same disadvantages as single- 
tier district court review. From the standpoint of the system as a whole, 
however, the overriding flaw of single-tier district court review is absent, for 
discretionary access to a court of appeals may be sufficient to settle questions of 
law and to resolve intracircuit conflicts. 

On the strength of this analysis, we conclude that agency action is un- 
suitable for discretionary two-tier review unless two conditions are met. First, 
the volume of appeals must be large and burdensome, even after filtration 
through the district courts : otherv/ise, curtailment of the right to appellate 
review would not be worth the candle. ^^ Second, the proportion of those 
appeals involving legal issues or important interests must be very small ; other- 
wise, leave to appeal would be granted too often to achieve real savings. More- 
over, even if both conditions are satisfied, the need must be very great indeed 
to justify outright denial of appellate court review, if there is any reason to 
believe that the decisions of district courts would systematically differ from 
those that would be reached by circuit courts ; that is, that denial of automatic 
review would be outcome-determinative in any substantial number of cases. 
A high reversal figure indicates that district courts in this field are more than 

62. The discretionary approach would be appropriate, however, where two or more 
agencies, each generating a relatively small caseload, are combined for review purposes, 
producing a large aggregate caseload. Indeed, the more agencies subjected to this ap- 
proach, the less basis there is for the objection that a particular class of litigants has 
been singled out. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 217 

ordinarily prone to error or bias and, therefore, that circuit court review serves 
an especially significant error-correcting function. In particular, it would be 
unfortunate to deny private litigants challenging governmental action access 
to appellate courts in categories of cases in which the district courts are, in 
general, less sympathetic forums. 

4. Specific Agencies, (a) Social Security Adniinistrcition. (1) Cur- 
rent Practice: Mandatory Two-Tier Rez'iew. A natural testing ground for 
these generalizations is the Social Security Administration (SSA), a sub- 
division of HEW, which appears at the present to he the most significant 
instance of a federal agency whose adjudications on a formal administrative 
record are reviewable in the district courts in the first instance.'''' In fiscal 
year 1974, 3,585 social security cases were filed in the district courts,"'' yet 
only 246 district court decisions were a])j)ealed to the circuit courts."^ If one 
looks at a slightly longer ])eriod, and assumes a one-}ear lag''*"' between the 
two stages of review, the appeals rate seems to be about 10 percent,*'" roughly 
the same as that for district court cases generally."** About 80 percent of the 
social security cases involve claims for disability benefits; the balance involve 
claims for health insurance, retirement and survivors' benefits. 

That the ai)i)eal rate is not higher is due in part to the Ciovernment's own 
policy of restraint in challenging adverse decisions. From the inception of the 
disabilitv insurance program in 1955. through 1973, the Government appealed 
only 102 district court reversals, barely 5 percent of the total."" Its policy is to 
appeal only if the case appears to have serious administrative implications — 
that is, is contrary to statute, regulations, or administrati\e practices and 
might have a precedential effect on future cases : mere error in the application 
of the "substantial evidence" standard of review will not be challenged.'^*' 

Disability claimants, too, have tended to settle for a single round of re- 
view, appealing only 12 percent of all district court defeats since the program 



63. 42 U.S.C. § 405(g) (1970). 

64. 1974 A.O. Report, sitf>m note 1, table C2. 
63. Id., table B7. 

66. The median time interval from filing to disposition in district court social security 
cases is 10 months. 1973 .'\.0. Kf.i'okt, sut^ra note 1, table C5A. 

67. Social Security Administration Cases. 1970-74 

Fiscal xcar district court court of appeals 

1970 1,735 — 

1971 1,792 — 

1972 2,288 210 

1973 2.497 193 

1974 3,585 246 

1972-74 A.O. Rfj'okt. supra note 1, tables B7 and C2. .Assuming a one-year lag between 
district and circuit filings in the case, the 649 appeals in the last three years arc ten 
percent of tlie district court cases filed in 1971-73. 

68. Sec 1973-74 A.O. Report, supra note 1, tables B3 and C2. 

69. Staff of House Ways and Means Comm., 93d Cong., 2d Sess., Report on the 
Disability Insurance Program 262 (Comm. Print 1974) [hereinafter cited as Com- 
mittee Staff Report]. 

70. Id. at 266. 



218 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

began. ''^^ The explanation probably lies in a combination of factors — the ex- 
haustion of the litigant's resources, a recognition that the stakes do not justify 
a second round of litigation costs, and a realistic appreciation of the odds 
against success/- Attorneys, many of whom take disability cases on a con- 
tingency basis in the hope of earning the "reasonable fee" provided for by 
statute,''^ may be willing to gamble on a single ai)pearance before a familiar 
district judge but not to risk further time and money on a long-shot try in a 
more distant forum. 

(2) Appraisal of Direct Court of Appeals Review. Even on the basis of 
present figures, cited above, one can see that direct review of social security 
cases would bring a major increase in the appellate caseload. If every case now 
brought to district court were brought to a court of appeals — and presumably 
most would be, since the added costs of the latter are likely to be triviaF* — the 
increase would be on the order of 20 percent of the total present caseload of 
all circuit courts, nearly tripling the present number of direct administrative 
review cases. ^'^ But the present figures do not begin to suggest the expected 
magnitude of the social security caseload problem in the very near future. In 
the seven-year fiscal period 1967-73, social security filings in the district courts 
more than doubled.''^ In fiscal 1974, they rose by another 48 percent as the first 
black lung benefit cases came to the courts imder the Coal Mines Health and 
Safety Act of 1969.^'' Black lung litigation is expected to increase dramatically 
in the next two years, and then, so far as SSA is concerned, to drop off as that 
agency ceases to be responsible for the program.''* In the long run, a much 
more prolific source of litigation will be the Supplemental Security Income 
Program, ^^ which as of January 1, 1974, provides for a federally guaranteed 
monthly income to replace the former state programs of aid to the aged, 
blind and disabled. Claims under this statute are already moving through 
the multi-tiered processes of the SSA in about half the volume of the regular 
disability claims^" and are expected to equal that volume. The first wave of 
these cases has not yet broken upon the district courts, but it has been esti- 
mated that by 1976 district court filings in the combined disability programs 

71. /(/. at 269-70. 

72. More than 80 percent of all disability appeals have been decided in the Govern- 
ment's favor by the courts of appeals. Id. at 270. 

73. 42 U.S.C. § 406(b) (1970) (not to exceed 25 percent of past-due benefits). 

74. See notes 29-36 and accompanying text supra. 

75. See notes 1-2 and accompanying text .nipra. 

76. 1967-73 A.O. Report, supra note 1, table C2. 

77. 30 U.S.C. § 801 (Supp. II, 1972). 

78. Under the Coal Mines Health and Safety Act, black lung claims filed prior to 
January 1, 1974 are administered by HEW; claims subsequent to that date are filed 
pursuant to applicable state workmen's compensation laws certified by the Secretary of 
HEW as having adequate coverage, or absent such certification, are administered by the 
Department of Labor under the provisions of the Longshoremen's and Harbor Workers' 
Compensation Act. 30 U.S.C. §§ 924, 931-32 (Supp. Ill, 1973). 

79. 42 U.S.C. § 1381 (Supp. II, 1972). 

80. Committee Staff Report, supra note 69, at 164. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 219 

will have reached the staggering total of 10,000 per year, nearly ten percent of 
total civil filings in fiscal year 1974.«i Nor is the burden of this caseload 
evenly distributed throughout the judicial system. In fiscal 1974, about 20 
percent of all social security cases were filed in three judicial districts (Eastern 
Kentucky, South Carolina and Puerto Rico), and nearly 40 percent in eight 
districts, mostly in the Fourth, Fifth and Sixth Circuits and specifically in the 
Appalachian region. ^^ 

The impact of these new programs has not yet been felt by the circuit 
courts — yet even without them social security appeals have doubled since 
1970.**'' If the 10,000-case projection for the district courts comes true, and if 
the historic 10 percent appeal rate liolds, the courts of appeals will be receiving 
upwards of 1,000 social security appeals within four years, nearly 70 percent of 
them in the Fourth, Fiftli and Sixth Circuits. '*'* 

In view of these developments, it would be manifest folly to institute 
direct circuit court review. Indeed, this would be true even if the appeal rate 
were many times greater than it is. Two-tier review means greater expense 
and delay for those litigants who persevere to the appellate stage but lesser 
expense to the 90 percent who do not. And while many of those who accept 
the verdict of the district court do so because they cannot afford to go further, 
this consideration seems decisively outweighed by the saving— one is tempted 
to say salvation — to the judicial system through avoidance of what might 
conceivably be a 30 percent increase in the appellate court caseload. ^^ 

(3) Appraisal oj Discretionary Ttvo-Tier Review. The more difficult 
question is whether court of appeals review ought not be made discretionary in 
social security cases. The conditions outlined earlier seem fairly well satisfied. 
Although the present volume of appeals would not justify such a departure 
from the tradition of appellate review as of right, the projected volume, 
especially if concentrated in three circuits, could well have a discernible effect 
on the quality of adjudication.^^ 

81. Mat 4. 

82. 1974 A.O. Report, supra note 1, table C3. 

83. See note 67 supra. 

84. Sec Committee Staff Report, supra note 69, at 270. 

85. Sec notes 1-2 and accompanying text supra. 

86. An alternative possibility would be to expand the number of circuits so as to 
I^rovide additional manpower without impairing the ability of individual courts to main- 
tain a uniform law of the circuit. Every such mitosis, it may be objected, reduces geo- 
graphical diversity, enhances the power of individual Senators over the api)ointment 
process, and increases the risk of intercircuit conflicts that the Supreme Court may be 
too busy to resolve. See, e.g., H. Friendly, supra note 10, at 39-41 ; Carrington, supra 
note 31, at 580-87. We share Judge Fricndly's reservations as to the extent to which 
additional circuits would mean additional conflicts. If eleven courts agree on an issue, the 
chance that a twelfth or even a twentieth will disagree seems remote indeed. The prob- 
lem of single-Senator dominance of a one-state circuit could be met in the New York 
City area, for example, by drawing circuits that would include portions of New Jersey 
and/or Connecticut as well as of New York. Splitting a state between circuits has its 
l)roblems, but it has already been formally proposed for California by the Commission 
on Revision of the Federal Court Appellate System, and an extensive argument has been 



220 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

The second condition — that relatively few appeals would be allowed under 
a discretionary procedure — is also probably met. It is plain that a high pro- 
portion of all social security cases involve purely evidentiary issues. More 
]-)ertinent. and less clear, is whether the same can be said about the much 
smaller subclass of cases in which appeals are now taken. Since the Govern- 
ment appeals onlv 5 percent of its district court reversals and selects those on 
the same criteria that circuit courts would use in granting leave, discretionary 
review would not substantially weed out this class of appeals. Private litigants, 
however, who appeal more than twice as often, use less stringent criteria ; one 
assumes that their contribution to the circuit court caseload would probably 
be materially reduced by a discretionary filter. 

The third consideration — that the substitution of discretionary for man- 
clatorv review should have no systematic effect on the outcome of litigation — 
presents a more difficult question. The Covernment's petitions for review 
will, in the main, be granted: those we can ignore. The question is whether 
discretionary review would deprive social security claimants of a forum gen- 
erally more favorable to them than the district courts. The answer is probably 
not but depends to some extent on how one evaluates certain figures. If one 
ignores remands and technical dismissals, more than four out of five disability 
appeals are decided in the Government's favor in the circuit courts. But count- 
ing remands as losses — not unreasonable since seven of every eight appeals 
are by the claimant — the Government's batting average falls to a less reassuring 
67 percent.^' In any case, there is solid evidence that district court review is 
no mere rubber stamp. Prior to 1968, the SSA's record in the district courts 
was notably unimpressive, a majority of cases ending either in reversals or 
remands.^* Since that time, it has fared somewhat better, partly because of a 
1968 statutory amendment tightening the definition of disability*^ and partly 



made tliat tlie problems of a split state are not very serious. See Hellman, Legal Problems 
of Dkiduui a State Beturen Federal Judicial Ciicuits, 122 U. Pa. L. Rev. 1188 (1974). 
To develop fully tlie disadvantages of dividing the circuits and to compare them with 
those of the iiresent social security jiattern is beyond the scope of this study. 
S7. CoMMiTTKF. St.\fk Rf.port, siipra note 69, at 270. 

88. In 1965, two district judges observed that in a several-month period in 1965, 
tlie SSA had been either reversed or remanded in 63 (according to one) or 75 percent 
(according to the other) of the cases. Scott v. Celebrezze, 241 F. Supp. TZi, 736 
(S.D.X.V. 1965); Seldomridge v. Celebrezze, 238 F. Supp. 610-20 (E.D. Pa. 1965). 
Unpubhshcd figures compiled by SSA show that in the fiscal year period 1965-67, the 
Secretary was affirmed in 48 percent of all social security cases, reversed in 26 percent, 
and remanded in 26 percent. Soci.^l Securitv .Xdmixistr.mio.n, Dep't of Health. Edi- 
CATiox. AXD Welfare, Opekatioxal .A.xalvsis of the Bureat of Hearings and 
Appeal? 31 (June 30, 1973) [hereinafter cited as HEW, Operational Analysis]. Pub- 
lislied figures, unfortunately, do not record the number of remands. They show that in 
disability cases in which the Secretary's decision was either affirmed or reversed, the 
affirmance rate in the period 1955-67 was 66 percent; and that if total dispositions are 
deemed to include affirmances, reversals and cases in which benefits were allowed after 
court remands, the affirmance rate was 48 percent. Committee Staff Report, supra note 
69. at 269, 271. 

89. Act of Januarv 2, 1968, Pub. L. Xo. 90-248, §§ 104(d) (5)-106, 156(e)-159(b), 
81 Stat. 833, 867-69, codified in scattered sections of 42 U.S.C. (1970). 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 221 

because of increasingly rigorous review of benefit-denials witbin tbe admin- 
istrative process. '■''' In tbe fiscal period 1968-73, the SSA was affirmed in 58 
percent of all social security cases, reversed in 14 percent and remanded in 
28 percent.**^ These figures suggest that district court review, on the whole, 
is searching and sympathetic, and that placing appellate review on a discre- 
tionary basis would not leave claimants' rights inadequately protected. 

We conclude that while denial of access to a court of ai)peals is not a 
step to be taken without compelling justification in tbe interest of a sound 
and effective judicial system, the proper circumstances for such a move may 
well be present, or imminent, in the social security area.^^ 

A similar analysis should be made before adopting the suggestion of 
transferring review of such actions as Interior Department mining claims or 
federal employee discharges from district courts to the courts of appeals."-* 
As with social security, we suspect the issues in both classes of cases are 
largely evidentiary and, especially in the employee cases, the immediate stakes 
relatively small. We have no information as to the number of mining cases ; 
it appears that perhaps 200 employee cases were filed in tbe district courts 
in fiscal 1974, and we know of 28 appeals.^* An extra 170 cases of this nature 
annually would not destroy the circuit courts (though over half the appeals 
were in a single circuit, tbe District of Columbia), but it is worth considering 
whether, given the caseload problem, even such an addition is justified. The 
more significant question is whether initial district court review of several 
such relatively small categories might in the aggregate provide substantial re- 
lief to tbe courts of appeals. 



90. Under tlie establJshed procedure, a claimant dissatisfied with tlie determination 
of the state agency, both initially and upon reconsideration, is entitled to a hearing before 
a federal administrative law judge, whose decision is reviewable in turn, either sua 
sponte or ui)on the claimant's request, by an Apjjeals Council. 20 C.F.R. §§ 404.901- 
404.990 (1974); see Committek Staff Report, suf^ra note 69, at 31-33. In the period 
1960-73, the rate of reversals, both at the hearing and appeals levels, has dramatically 
increased. Reversals by administrative law judges increased from 19.3 to 52.1 percent; 
reversals by the Appeals Council, from 3.6 to 12.3 percent. Sec Committee Staff Report, 
supra note 69, at 77, 247, 249, 254. 

91. HEW, Operatio.val Analysis, supra note 88, at 31. House Ways and Means 
Committee statistics, which are somewhat less comi)lete, indicate that in the period 1968-73, 
in disability cases either affirming or reversing the Secretary, the affirmance rate was 81 
I)ercenl, rising to 85 percent in 1973. If total dispositions are taken to include benefit- 
allowances after court remand, the affirmance rate for the same period is 62 percent, 
rising to 64 percent in 1973. Committee Staff Report, supra note 69, at 269. 271. 

92. The further question is whether steps should be taken to ])rotect the district 
courts from the exi)ected flood of social security cases. The fact that these litigants have 
already run the gauntlet of initial hearing and administrative review suggests that to 
interpose still another administrative hurdle might be practically tantamount to denying 
judicial review. The substantial disadvantages of creating a special court, constitutional 
(jr legislative, for social security cases are detailed below. Sec text following note 347 
iiifra. We think that, given the noncollegial nature of the district courts, the best solution 
may be to ap|)oint additional district judges. 

93. See note 27 supra. 

94. The General Counsel of the Civil Service Commission has informed us that 
401 such cases were filed in all courts in fiscal 1974 and that in fiscal 1969 roughly half 
of such cases were filed in the Court of Claims. The appeal figure we derive from de- 
tailed information furnished by the Administrative Office to the Administrative Conference. 



222 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

(b) National Labor Relations Board. (1) Current Practice: Direct 
Court oj Appeals Review. The Labor Board seems, at first bhisb, a natural 
candidate for two-tier review. Its unfair labor practice decisions — reviewable in 
courts of appeals is cither enforceiuent actions by the Board or review actions 
by the charged party""^' — make up by far the largest contribution of any agency 
to the direct-review caseload. In the last five fiscal years, they averaged 652 
cases annually, 40 percent of all direct-review cases and nearly 45 percent of 
those outside the District of Columbia.'*" Here, if anywhere in the adminis- 
trative area, there might seem a real opportunity for pruning. Moreover. Labor 
Board cases — -unlike, for example, ratemaking or license decisions of the trans- 
l)ortation and energy regulatory agencies — are not obviously unsuitable for 
initial district court review by virtue of their subject matter. Typically, they 
involve narrow questions of s])ecific fact and of law, not broad issues of policy 
or discretion. And the economic interests at stake are often, though not always, 
too small to be worth pursuing through two levels of judicial review : as a 
practical matter, the district court would be the last stop. 

(2) Appraisal oj Mandatory Two-Tier Revieiv. Yet the considerations 
favoring two-tier review seem to us heavily outweighed by those opposing it.'*'' 
We might add, though this is not decisive, that we have found no Labor 
Board attorney or ])rivate lalior practitioner who does not resist the idea of 
initial district court review. It is generally felt that district judges, apart from 
being less capable, on the average, than appellate judges, are also less familiar 
with the intricacies of the Labor Relations Act. In time, they would no doubt 
gain exjierience in labor matters but they could never gain as much as circuit 
court judges already have — there are simply too many district court judges and 
too few labor cases. Competence aside, labor relations is an area in which vari- 
ations in attitude and philosophy among district judges are peculiarly likely 
to influence litigation outcomes ; a multi-member court, with its tendency to 
neutralize bias, is especially valuable here. At present, the circuit courts, with 
one exception, are reasonably uniform in their treatment of Labor Board 
cases,"** and there is no assurance that district judges would be like-minded. If 

95. 29 U.S.C. § 160(e), (f) (1970). 

96. 1974 .'\.0. Rki'dkt, supra note 1, table B3. This figure, however, may be gros.sly 
nii.sloadiiig. By tlic Dojud's own tally, tiie luimbci" of court of aiipcal.s decision.'; in review of 
eui'orcenieiU cases in the period 1970-73 was only 1,384, an animal average of 346, 1970-73 
X'l.KB Ann. Kki'., table 19. The discre|)ancy seems to lie in the fact that the Board's 
figure does not include, while the Administrative OlVice statistic apparently does, cases 
resolved by formal court-ai)proved settlements in which the charged parties stipulated 
cither to the disiiositive facts or to the entry of a court of appeals ju(lgn)ent. Since the judg- 
ment in such ca.ses is pro forma and consumes little if any judge time, it would be 
advisable, for our purposes, to think in terms of the smaller Board figure rather than the 
twice-larger Administrative OlVice figure. F.ven on this basis, however, the Board's con- 
tribution to the appellate caseload remains substantially larger than that of any other 
agency. 

97. Sct- notes 54-60 and accom|)anying text .'iiipra. 

98. During fiscal years 19()8-72, the percentage of Board decisions affirmed in full in 
all e.xcept the Kighth Circuit, ranged narrowly from 63.6 to 74.3 percent; every circuit. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 223 

they were not, forum shopping could become a much more serious problem for 
the Board.'*'' Finally, the NLRB is one of the great independent agencies whose 
prestige makes direct review by a multi-member court seem particularly appro- 
priate. In sum, the superiority, or at least the perceived superiority, of the 
court of appeals is a factor which in this area deserves more than usual weight. 

Furthermore, in terms of efficiency, mandatory two-tier review for the 
Labor Board would be a doubtful prescription. For litigants who persevere to 
the appeals court, it would further delay what is already a lengthy process. 
The filing of a charge, informal efforts by the charging party (first at the re- 
gional, then at the national level) to secure issuance of a complaint by the 
General Counsel, formal hearing, successive decisions by the administrative 
law judge and by the Board typically consume more than 10 months, judicial 
review still to come.'"" District court review would add at least another 
six,'"' and in the busier big-city districts where labor litigation is heavy, much 
more.'"^ All of this might conceivably be justified by the prospect of major 
savings to the judicial system, but there is no real prospect. 

Whether in a two-tier scheme the appeal rate would be low enough to 
yield a net reduction in total judge-time, or a significant reduction in the 
ajjpellate caseload, is entirely conjectural. The economic stakes in unfair 
labor practice cases, and the resources of the litigants, vary widely: A bare 
indication is the fact that a quarter of the situations that come before the 
Board involve establishments with fewer than ten employees: another quarter, 
establishments with 10 to 40 em])loyees : and still another quarter, establish- 
ments with 190 or more employees.'"^ Moreover, if employers charged with 
unfair labor practices frequently pursue judicial review, even in hopeless 

tliat i.s, was witliin 10 points of the national percentage of 65.8 |)ercent. The affirmance 
rate for the Eighth Circuit, however, was only 44 percent. 1973 NI.RB Ann. Rkp., table 
19A. at 2.S1. 

99. I*'onini -shopping by parties to NLRB proceedings has been the subject of much 
discussion and concern. Sec, c.(/., Connnent, Forum-Shop t^imi in the Rc''ir7v oj NI.RH 
Orders, 28 U. Cm. L. Rkv. 552 (1961). The Nl.RR itself informs us that its operations 
are not significaiuly affected by forum-sliopping, see Letter from Peter (>. Nash, Ceneral 
Counsel, NI.RB, to Antonin -Scalia, Ciiairinan of Administrative Conference, Oct. 25, 
1974, hut we are told by Professor Clyde Summers, who is i)rei)aring a paper on the 
fio.ird for the Commission on Revision of the Federal Court Appellate System, that 
shopping is still extensively |)racticed by private attorneys, despite the increasing uni- 
formity in decisions by the various circuit courts. 

100. Ileariufis on S. 3671 Before the Subcowm. on Separation of FoZicrs of the 
Senate Cumin, on the Judiciary, 91st Cong., 2d Sess. 308 (1970) |licrcinafter cited as 
1 1 carinas on S. 3671]. 

101. The median time interval, from filing to disposition, in all civil cases in all 
district courts in fi.scal year 1973 was 10 months. Among cases disposed of prior to 
trial, however, the median time was only six months. 1973 A.O. Rki-oht, supra note 1, 
table C5. 

102. In the Southern District of New York, the period from filing to (lis|)osition 
was 25 months; in the pLastern District of Pennsylvania, 17 months, 1973 ,A.O. Rkb'ORT, 
supra note I, table C5. There is .some (lis|)Ute as to whether the great urban districts are. 
in fact, the main loci of labor litigation. See Hearings on S. 3671. supra note 100, at 75. 

103. 1973 NLRB Ann. Rep.. App. table 18, at 248. 



224 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

cases, for the purposes of delay, the two-tier system would play into their 
hands. 

Thus, the picture is mixed: The Labor Board cases He halfway between 
the small-Htigant, small-stake model exemplified by the SSA and the large- 
litigant, large-stake model typified by the Federal Power Commission (FPC), 
Civil Aeronautics Board (CAB), Xuclear Reactor Commission (NRC, for- 
merly the Atomic Energy Commission (AEC)), and by ICC railroad regula- 
tion. Mandatory two-tier review does not seem warranted or politically 
possible. 

(3) Appraisal of Discretionary Two-Tier Review. There remains the 
question of discretionary two-tier review. Its sole advantage would be to assure 
a reduction in the appellate courts' on-the-merits caseload regardless of the 
rate of appeal. The present volume of labor appeals seems large enough to 
make this option worth considering, but the other two conditions we have 
suggested as prerequisites for discretionary review are not clearly satisfied. 
One cannot confidently say — as one could, for example, of social security, 
deportation, or longshoremen's compensation cases — that few Labor Board 
cases would qualify for discretionary review. A substantial number of such 
cases do involve issues of law transcending the particular situation, albeit 
usually narrow and technical questions of statutory construction and, more 
often, application. The ongoing conduct of labor-management relations fre- 
quently depends on there being authoritative answers to these questions. And 
even many cases challenging the substantiality of the evidence underlying the 
Board's orders involve important enough interests, either in purely monetary 
terms or in terms of the ongoing life of the plant, to make them eligible for 
discretionary review. The caseload savings, while probably substantial, might 
therefore be rather less than one would expect from the present volume of 
appeals alone. More important, and in our view decisive, is the widely per- 
ceived inferiority of the district court as a forum for labor matters, the felt 
danger of biased or misguided decisionmaking by district judges unversed in 
labor law. This consideration alone, we think, demands that the court of appeals 
be automatically available — if not as a first resort, certainly as a last. 

We note, finally, that some good might be done by making Labor Board 
orders, like those of all other major independent administrative agencies, self- 
enforcing. This could be done by providing either that the Board's own order 
should be final unless a petition for review is filed within a specific period or 
that the Board's order shall be filed forthwith in the appropriate circuit court 
and entered as the decision of the court unless challenged within a designated 
period. This reform, recommended in one variation or another by the Adminis- 
trative Conference^"* and others,'"^ would have two potential advantages. 

104. 1 Administr.mive Conf. of the United States, Recommendations and Re- 
ports, .-KCUS Rec. 10, at 24, 237 (1970) [hereinafter cited as ACUS Rec.j. 

105. See, e.g.. Advisory Panel on Labor-Management Relations Law [the "Cox 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 225 

First, it would eliminate the period of delay that now elapses between issuance 
of a Board order and filing of an enforcement action. Second, it would relieve 
the circuit courts of those cases in which a non-complying charged party, 
though willing to resist an enforcement proceeding, would be unwilling to take 
the initiative in contesting the order. We see no justification for the present 
unique requirement that the Board go to court in order to give teeth to its 
decisions. Neither, however, would we expect the proposed change to yield 
more than marginal benefits. \\'hereas at one time a total of 100 days typically 
elapsed between issuance of the order and filing of the enforcement action,^"^ 
the interval has now been reduced to about 30 days. We are told, moreover, 
by the head of the Appellate Branch of the Board's General Counsel's Office 
that many recalcitrant employers now abandon their opposition to the order 
when advised that an enforcement proceeding is about to be, or has just been, 
filed. ^"'^ The number of cases removed from the appellate dockets by a self- 
enforcement provision might therefore be rather small. In any event, as Judge 
Leventhal has observed, Labor Board enforcement proceedings which are not 
truly contested are no great burden for the courts. ^"^ 

(c) Inunigrafion and Naturalisation Serz'ice: Deportation Cases. (1) 
Current Practice: Bifurcated Rez'iczi.'. Deportation orders of the Immigration 
and Naturalization Service (INS) are another category of cases that might be 
thought appropriate for two-tier review. Prior to 1961, they were in fact re- 
viewed by district courts, either in habeas corpus or in nonstatutory actions 
for declaratory or injunctive relief under section 10 of the Administrative 
Procedure Act.""' In that year, Congress, disturbed by "the growing frequency 
of judicial actions being instituted by undesirable aliens whose cases have no 
legal basis or merit, but which are brought solely for the purpose of preventing 
or delaying indefinitely their deportation from this country."^"' added section 
106(a) to the Immigration and Nationality Act. The amendment eliminated 
the district court stage and gave courts of api)eals exclusive jurisdiction to 
review "final orders of deportation."'" 

The wisdom of these amendments was sharply questioned by Judge 
Friendly in his 1972 Carpentier lectures. He argued that while the purpose 
of the legislation was to expedite the deportation of certain notorious aliens 
able to afford repeated dilatory appeals, in the majority of cases "it has prob- 
ably had the opposite effect."''^ Whereas previously most aliens who failed 



I'aiiel"), Rki'okt to Se.v. Comm. on Lahor &• Pub. Welfare, Oroamzation and Pro- 
(KDiKE OK THE NLKB, S. Doc. No. 81, 86th Cong., 2cl Sess. (1960). 

106. 1 ACU.S Rcc. 10, supra note 104, at 259. 

107. Willingness to comply may be influenced by recent ai)i)ellatc decisions tliat 
a i)arty frivolously opposing a Board order may be liable for tiie Board's court costs 
as well as his own. 

108. Srr Statement of Judge Leventhal, supra note 2, at 9-10. 

109. 5 U.S.C. § 703 (1970). See Shaughnessy v. Pedreiro, 349 U.S. 48 (1955). 

110. H.K. Rep. No. 1086. 87th Cong., 1st Sess. 22-23 (1960). 

111. 75 Stat. 651, 8 U.S.C. § 1105a(a) (1970). 

112. H. Friendly, supra note 10, at 175-76. 



226 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

to obtain a stay of their deportation orders in a district court did not appeal, 
the deportee, instead of having to act speedily, "now has six months to file a 
petition for review and this works as an automatic stay unless the INS moves 
to vacate it,"^^^ as it rarely does. Moreover, he noted that the statute "has en- 
gendered numerous jurisdictional disputes which have already demanded three 
Supreme Court decisions and will probably require more."^^* The clear answer, 
he concluded, was to repeal section 106(a). return final deportation orders to 
the district courts, and expect the courts of appeals to give expeditious treat- 
ment to those district court orders that are appealed. 

There is much to be said for this proposal. Deportation appeals rarely 
involve questions that transcend the particular case. The most frequent issue 
is whether the immigration judge acted arbitrarily in denying one of the many 
forms of relief which the statute commits to the Attorney General's discretion. 
The resources of a three-judge appellate court are arguably wasted on such 
deliberations. 

Another consideration in favor of restoring deportation orders to the 
district courts is that it would eliminate the bifurcation of review that has 
resulted from the Supreme Court's interpretations of the scope of section 
106(a). Under Immigration Service regulations, a deportation order is issued 
by an immigration judge after a formal trial-tyj^e proceeding, ^'^ in which the 
central issue, unless conceded, is the alien's deportability. Appeal lies to the 
Board of Immigration Appeals. In addition, however, the statute authorizes 
a variety of discretionary relief which, if granted, may have a bearing upon 
the question of deportability or upon the execution of the deportation order. ^^* 
Certain of these discretionary determinations can be made only by an immi- 
gration judge in the course of a formal deportation proceeding ; others must 
be made by district directors of immigration either before, during, or after — but 
outside the framework of — the deportation proceeding. The question thus 
posed, one which sharply divided the circuits, was whether some or all of 
these discretionary determinations were part of the "final orders of deportation" 
which section 106(a) makes reviewable in circuit courts. In a series of three 
decisions, the Supreme Court held that "final orders of deportation" include 
discretionary determinations by the hearing officer during and incident to the 
deportation proceeding, ^^'^ and denials by the Board of motions to reopen de- 
ll 3. Id. 

114. Id. 

115. 8 U.S.C. § 1252(b) (1970); 8 C.F.R. § 242 (1974). 

116. E.g., 8 U.S.C. § 1153 (1970) (classification as a preference-immigrant); id. 
§ 1182(c) (waiver of inadmissibility) ; id. § 1182(e) (waiver of 2-year residency require- 
ment for exchange visitors) ; id. § 1253(h) (withholding of deportation) ; id. § 1254(a) 
(suspension of <iei)ortation) ; id. § 1254(e) (voluntary departure) ; id. § 1255(a) (adjust- 
ment of status) ; id. § 1258 (change of non-immigrant classification) ; id. § 1259 (record 
of admission for permanent residence). 

117. Foti V. INS, 375 U.S. 217 (1963). 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 227 

portation proceedings,^^* but do not include non-record discretionary deter- 
minations by district directors altogether outside the deportation proceeding.^^* 
The latter are still reviewable exclusively in district courts. 

This split-level scheme of review has evoked a good deal of criticism. 
Professor Davis has argued that the present bifurcated structure produces 
confusion, wasteful jurisdictional litigation and piecemeal review, and should 
be replaced by a single judicial remedy, be it at the district or appellate court 
level. ^^'^ The Immigration Service itself favors the latter solution. It maintains 
that the continued availability of district court review for non-record discre- 
tionary determinations defeats the congressional purpose to shorten the depor- 
tation process and minimize stalling tactics ; and in 1971 it proposed legislation 
to broaden section 106(a) so as to make all deportation-related decisions 
reviewable solely by circuit courts. ^^^ This approach is open to the persuasive 
objection that it would add to the already bulging dockets of the appellate 
courts a class of cases — non-record discretionary determinations by immigra- 
tion field officers — that could hardly be less suitable for appellate review. The 
alternative solution — returning record determinations to the district courts — 
seems, from that standpoint, far preferable. 

Furthermore, even if one assumed that interposition of the district 
courts would, in the net, increase somewhat the total time required for judicial 
review of deportation, the savings from direct appellate review would probably 
be quite small in relation to the total period of review, especially in those cases, 
of principal concern to Congress, in which the alien is determined to postpone 
deportation as long as possible.' ^^ The ability of determined aliens to postpone 
the evil day has very little to do with the existence of two levels rather than a 
single level of review. It has everything to do with the persistence and in- 
genuity of counsel in plying the INS with new applications for discretionary 
relief, the denial of which then provides a pretext for successive challenges in 



118. Giova V. Rosenberg, 379 U.S. 18 (1964). 

119. Cheng Fan Kvvok v. INS, 392 U.S. 206 (1968). 

120. K. Davis, supra note 43, § 23.03, at 798-99 (1970 Supp.). 

121. H.R. 2328, 92d Cong., 1st Sess. § 7 (1971). Professor Jaffe also appears to 
favor this solution. L. Jakfe, supra note 4, at 422. 

122. The point is well illustrated by some of the "horror stories" cited by the 
House Judiciary Committee in describing the dilatory tactics sought to be remedied in 
section 106(a). H.R. Rep. No. 565, 87th Cong., 1st Sess. 7-11 (1961). The most notorious 
instance was that of Carlos Marcello, who was ordered deported in February, 1953, yet 
after seemingly endless litigation still remained in the country in June, 1961. Marcello 
f^led five successive district court proceedings challenging either the district court de- 
portation order or the denial of discretionary relief. Three times he appealed to the 
courts of appeals (once successfully). Twice he carried his case to the Supreme Court. 
Among the many circumstances that conspired to frustrate efforts at deportation, the 
availability of district court review was a very minor one. All told, the five district 
court proceedings consumed about 15 of the nearly 100 months during which Marcello 
evaded banishment. Furthermore, nearly half of the months were spent in the two 
proceedings in which, because the trial court proceedings were not appealed, only a single 
stage of review occurred. 



228 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

court. That avenue of abuse would in no way be widened by a transfer of 
responsibility from appellate courts to district courts. '^^ 

It might, of course, be objected that district court review would be useless 
at best, and at worst highly mischievous, in an area where litigants so fre- 
quently have no object other than delay. Their cases, one might expect, would 
inevitably reach the court of appeals anyway. Yet this is far from clear. It is 
noteworthy that in fiscal year 1961, the last full year before section 106(a) 
went into effect, 162 deportation cases were commenced in the district courts 
of the Second Circuit, yet only 15 appeals were docketed in the circuit court.^^^ 
It may well be, moreover, that a deportation case can be decided more quickly 
in a district court than in a circuit court. The great majority of declaratory 
judgment actions challenging the denial of discretionary relief by district 
directors are disposed of on the Government's motion for summary judgment 
or the plaintiff's motion for preliminary injunction within weeks, often within 
days, of their commencement. In the circuit courts, on the other hand, the 
process of briefing, argument and decision regularly requires several months. 
True, this pattern is now changing as courts of appeals, beset by mounting 
caseloads, increasingly resort to summary or abbreviated procedures. But 
until those procedures are more widely used, the district courts, by and large, 
will continue to be the more expeditious forum at the initial stage of review. 

(2) Appraisal of Two-Tier Review. Despite all we, and Judge Friendly, 
have said, restoration of district court review of deportation orders does not 
promise sufficient advantage to make it worth the while. Unlike social security, 
deportation does not present a caseload problem of significance. In the fiscal 
period 1970-74, while the total caseload of the circuit courts was increasing by 
about 40 percent (from 11,662 to 16,436), the deportation component declined 
by about the same percentage (from 413 to 237) and its share of the total from 
3.5 to 1.4 percent. ^^^ This drop is surprising in view of the sharp increase 
in aliens apprehended by the INS, and hearings held by immigration 
judges, during the corresponding period. Indeed, the judicial trend may be 
reversing itself. In the last two years, deportation cases have rather sharply 
increased (from 175 to 237). But even if the caseload continues to rise in this 

123. In the eyes of many knowledgeable government attorneys, the truly mischievous 
feature of the ])resent scheme of review is not the continuing role of district courts but the 
automatic stay of deportation once appeal is perfected to the circuit court. 8 U.S.C. 
§ 1105a(a)(3) (1970). They point out that whereas district court review adds days or 
weeks to the deportation process, court of appeals review typically takes months, and the 
automatic stay provides this respite even for the patently dilatory appellant. 

This argument might have been highly persuasive before the advent of summary 
review procedures in the appellate courts. It is much less so now that those procedures en- 
able the courts to dispose of patently frivolous petitions on roughly the same sliowing by 
the Government, or lack of showing by the alien, which would be needed to deny a stay 
of deportation even were it discretionary. Moreover, the automatic nature of the stay 
matters far less than the attitudes of the judges. 

124. See Foti v. INS, 308 F.2d 779, 785 n.6 (2d Cir. 1962), rev'd, 375 U.S. 217 (1963). 

125. 1974 A.O. Report, supra note 1, table B3. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 229 

fashion, it will remain relatively small, and the extent to which two-tier review 
would reduce it is largely speculative. To be sure, the burden is not uniformly 
distributed among the circuits. The Ninth is by far the busiest with nearly 
half the cases in fiscal 1972 ; the Second a distant runner-up that year with 
about 13 percent. ^^^ For the Ninth Circuit, a district court screen might be of 
some help ; for other circuits, the relief would be negligible. 

The argument for two-tier review as an antidote to bifurcation is also ul- 
timately unpersuasive. Bifurcation does not seem to us as great a problem as it 
seems to many others. The element of uncertainty that once surrounded the 
jurisdictional issue, and generated three Supreme Court and countless cir- 
cuit decisions, has now been greatly reduced by the drawing of a bright line 
between decisions of immigration judges, reviewable only by courts of appeals, 
and decisions of district directors, reviewable only by district courts. Few 
competent lawyers are any longer apt to find themselves (by mistake, at least) 
in the wrong court. 

To be sure, bifurcation may, as Professor Davis observed, result in frag- 
mentary review of a single deportation case in those situations where the dis- 
trict director's determination could be reviewed at the same time as the order of 
deportation but must be routed instead to the district court for separate treat- 
ment. But this problem could easily be cured by a holding that the district di- 
rector's determination is reviewable along with the deportation order on a 
theory of pendent jurisdiction. ^^^ Furthermore, the bifurcated system does 
not create, and its elimination would not cure, what is perhaps the most seri- 
ous source of delay and multiple litigation in the deportation area — the ability 
of the alien to file successive petitions for review from successive denials of 
administrative relief, limited only by the seemingly inexhaustible ingenuity of 
counsel and the patience of the courts. Elimination of district court jurisdiction 
might shorten each round of review, but it would not reduce the number of 
rounds. 

In sum, we see no great advantage in a return to two-tier review. There 
are, moreover, at least two hazards: the risk that the extra stage of review 
will be exploited for delay ; and the danger, feared by attorneys on both sides, 
that district judges are more apt to be swayed by subjective attitudes for or 



126. These figures were obtained from the Administrative Office of the United 
States Courts ; we have no reliable figures for later years. 

127. The Supreme Court has expressly declined to decide whether a circuit court, 
entertaining an appeal from a final order of deportation, might have "pendent jurisdic- 
tion" to review a denial of discretionary relief. Cheng Fan Kwok v. INS, 392 U.S. 206, 
216 n.l6 (1968) ; compare Dong Yup Lee v. INS, 407 F.2d 1110 (9th Cir. 1969) (reviewed 
denial of visa petition presented during pendency of deportation hearing, but found no 
authority to review similar denial before proceeding commenced), and Dibadj v. INS, 
411 F.2d 983 (3d Cir. 1969) (denial of waiver for exchange visitor after deportation 
proceedings completed held not reviewable with deportation order), with Wei-Ming Chang 
v. INS, 418 F.2d 1334 (9th Cir. 1969) (denial of waiver for exchange visitor before 
commencement of deportation, jurisdiction assumed and denial upheld), and Perdido 
V. INS, 420 F.2d 1179 (5th Cir. 1969) (same). 



230 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

against the alien than multi-member appellate courts. We note, finally, that we 
do not find the present scheme as irrational and conceptually untidy as many 
critics do. That the informal discretionary determinations of an administrative 
official should be reviewed in the first instance by a single district judge (capa- 
ble, if need be, of taking evidence) while the formal, on-the-record, albeit 
equally discretionary, determinations of a quasi-judicial hearing officer should 
be reviewed directly by a court of appeals does not, in principle, seem offensive. 

(d) Department of Labor: Longshoretnen's Compensation and Black 
Lung. (1) Current Practice: Direct Court of Appeals Review. Prior to 1972, 
decisions of deputy commissioners — officers who investigated claims and held 
hearings — under the Longshoremen's and Harbor Workers' Compensation 
Act of 1927 were subject to review in the district courts.'^* This was entirely 
understandable: The stakes and the litigants (at least the claimants) were 
typically small, and issues of law or policy rarely presented. The volume of 
cases, to be sure, was not high. In the five-year period from November, 1963 
to June, 1968, there were about 70 district court filings annually, and in later 
years they declined to a low of 44 in fiscal 1972. ^^^ We do not have solid data 
on the number of appeals from district to circuit courts, but it appears there 
were fewer than 20 per year.'^*' In 1972, Congress amended the Act to pro- 
vide for direct court of appeals review of longshoreman compensation cases. 
At the same time, it added a stage of review to the administrative process 
by establishing a Benefits Review Board^^^ to receive appeals from the de- 
cisions of administrative law judges, to whom the hearing functions previously 
conducted by deputy commissioners were now assigned. ^^^ The change in the 
judicial review provision is not explained in the legislative history, but one can 
reasonably assume it reflected a congressional judgment that the added op- 
portunity for administrative review made the district court review unnecessary 
and potentially exhausting. 

One might have thought that the institution of direct review would pro- 
duce a substantial increase in caseload for the courts of appeals, perhaps even to 
the level previously experienced by the district courts. This does not appear to 
have happened. From March, 1973, when the change went into efifect, to 
November, 1974, only 19 longshoreman compensation cases were filed in the 
circuit courts, '•'^•* less than one per month as compared to the nearly four per 
month average in the district courts in the last full fiscal year before the 

128. 44 Stat. 1436, 33 U.S.C. § 921 (Supp. II, 1972). 

129. These incomplete figures were supplied us by members of the staff of the 
Solicitor of tiie Department of Labor. 

130. According to figures supplied us by the SSA, there were five filings and 19 
decisions at tiic circuit court level in fiscal 1972, and nine decisions in fiscal 1970. 

131. 33 U.S.C. § 921 (Supp. II, 1972). 

132. /(/. § 919 (Supp. II, 1972). 

133. These statistics were supplied us by the office of the Solicitor of the Depart- 
ment of Labor. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 231 

ameiulnient, and to the nearly six per month in the late 1960's. Indeed, it 
is not clear that the new procedure has added anything at all to the appellate 
dockets. 

We can only speculate as to the reason. One possibility is that litigants 
found the district court a more inviting forum. The other, much more likely, 
possibility is that for many litigants the new Benefits Review Board is serving 
as a substitute for the district court, meeting their need for a forum in which 
to challenge the decisions of the hearing officers and thus making it unnecessary 
for them to go to court. In the first eleven months of 1974, well over 200 
appeals were filed with the Board in longshoreman cases, '■'''* all of which, if 
pressed at all, would previously have been routed directly to the judicial sys- 
tem. In sum, the Board seems to be performing for the circuit courts the same 
screening function that district courts usually perform. The moral of the story 
seems to be that the best way to reduce the judicial burden of reviewing 
administrative action is to provide a sufficiently lengthy process of administra- 
tive review within the agency. Unfortunately, the opportunities for that are 
distinctly limited ; the former procedure under the Longshoremen's Act, which 
sent the decisions of hearing officers directly to the courts, was rare, if not 
unique. 

The number of longshoreman cases in the courts of appeals will increase 
.substantially in the next few years, if only because, as another of the 1972 
amendments. Congress expanded the coverage of the Act to include injuries in- 
curred in areas — for example, piers, wharfs, terminals — adjoining the navi- 
gable waterway itself.'-''^ This extension has virtually doubled the volume of 
compensation claims. Even so, it is clear that longshoreman's cases present 
no major caseload i)roblems for the courts of appeals and no great opportunity 
for savings. 

(2) Potentially Increasing Caseload Burden: Appraisal of Need for 
Two-Tier Review. One cannot be at all sure this will remain the case with 
respect to black lung compensation claims filed after January 1, 1974, which, 
pursuant to the Black Lung Act of 1972,^^" are administered, in the absence 
of an approved state workmen's compensation scheme, by the Secretary of 
Labor in accordance with the provisions of the Longshoremen's and Harbor 
Workers' Act.''" The shift of administrative responsibility for black lung 
claims from Social Security to Labor was natural enough, since the post-1973 
claims are governed by what is essentially a workmen's compensation scheme, 
with primary liability for payment of benefits assigned to employers rather 
than to the Government. Nevertheless, the transfer has created an anomaly 



134. As of November 20, 1974, 208 cases had been filed with the Board during the 
calendar year. 

135. 33 U.S.C. § 903 (Supp. II, 1972). 

136. 30 U.S.C. §§ 901-941 (Supp. Ill, 1973). 

137. Id. §§ 931-32 (Supp. Ill, 1973). 



232 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

and, potentially, a problem. Whereas the black lung cases administered by 
Social Security are reviewed in the first instance by district courts, those 
administered by the Labor Department will be reviewed directly by circuit 
courts. The question thus arises whether the caseload considerations which 
virtually rule out direct review in the former area may not apply to the 
latter as well. 

Since the Benefits Review Board has not yet decided its first black lung 
case, it is hard to estimate what the judicial burden will be. In fiscal 1974, 464 
black lung cases were filed against the SSA in district courts ; nearly as many 
(450) were filed in the first four months of fiscal 1975 — 200 in October alone, 
the last month on record. With the caseload thus rising, and with the number 
of Appeals Council (the final stage of administrative review) filings for the 
first quarter of fiscal 1975 more than doubling those for the entire fiscal year 
1974,^^** it would not be surprising if district court filings for the year ex- 
ceeded 3000. W^e hasten to reassure the reader that there is no danger the 
Labor Department's black lung litigation will approach this scale. The great 
majority of those eligible for benefits filed their claims prior to 1974; the 
number of claims received by the Labor Department is therefore very much 
smaller than the number received by SSA.^^® 

Even so, it is evident that the volume of black lung cases directly re- 
viewable by the courts of appeals could be very substantial. Indeed, superficially 
at least, one might expect a given number of administrative decisions to gen- 
erate a larger volume of court litigation with respect to post- 1973 cases than 
for those filed earlier, since the former involve not only the traditional medical 
issues that go to eligibility but also difficult problems of employer liability. 
Labor Department attorneys, however, foresee no caseload problem for the 
circuit courts. They acknowledge that a number of important legal issues, 
mainly jurisdictional, will have to be litigated in the first year or two of oper- 
ation, but after that they expect a gradual decline in filings. They anticipate 
that coal mine operators will, for the most part, acquiesce in administrative 
determinations of liability, at least where the stafif has built a proper record, 
and that the medical issues will present many fewer difficult factual questions 
than the pre- 1974 claims, since a great proportion of the latter were filed by 
older miners and widows and had to be decided on the basis of stale records. 

138. These figures were supplied by the Bureau of Hearings and Appeals of the 
SSA. 

139. Figures su])plied by the Management Information and Appraisal Branch of the 
Office of Administration of the SSA indicate the number of black lung claims received 
at the intake level for fiscal 1972 and subsequent years as follows: 

1972 7S,Z2,7 

1973 148,985 

1974 82,799 

1975 (July 1-Nov. 20) 18,425 

The 1974 and 1975 claims, though filed initially with SSA, are administered by the 
Labor Department. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 233 

We are not able to assess these predictions with any confidence. We sug- 
gest, however, that black lung litigation may prove to be a source of serious, 
if temporary, docket pressures for the courts of appeals a year or two from 
now, and that it bears close watching. If it were concluded that initial district 
court review would significantly reduce appellate dockets, we see no telling 
objection on other grounds. 

B. Informal Rulemaking 

1. Direct Court of Appeals Review: Rule-Order Distinction. Statutes 
providing for judicial review commonly speak of "orders," which the Adminis- 
trative Procedure Act defines as final dispositions in matters "other than rule 
making."^'"' It is no surprise that this definition was never read into the 
statute providing for three-judge district court review of ICC "orders, "^^^ 
since that agency's substantial ratemaking business, though later classified as 
"rule making" by the APA,^"*^ was clearly meant to be included. Under the 
same statute and others based upon it, the Supreme Court has also construed 
"orders" to include general regulations adopted under the informal notice-and- 
comment provisions of the APA.''''' Thus, the Supreme Court in CBS v. 
United States^"^* held the FCC's chain-broadcasting regulations reviewable by 
a three-judge district court under a statute that incorporated the ICC pro- 
visions, and in United States v. Storer Broadcasting Co.,^*^ after review of 
FCC "orders" had been transferred to the circuit courts, held its regulations 
directly reviewable there. In both cases the Court may have been influenced by 
the fact that the alternative was no review at all ; it focused solely on questions 
of standing or ripeness for review, not discussing whether review should have 
been sought in a regular district court. 

Nevertheless, the District of Columbia Circuit in the influential case of 
United Gas Pipe Line Co. v. FPC^**' refused direct review of a Power Com- 
mission regulation under a statute similar in wording to the ICC provision. 
The statute, said the court, provided for "substantial evidence" review on the 
record at the instance of a party to the administrative proceeding. These 
provisions were said to contemplate "review of a decision based on evidence 
presented in a quasi-judicial proceeding before the Commission,"**'^ and to 
"evidence Congressional recognition that an appellate court has no intelligible 
basis for decision unless a subordinate tribunal has made a record fully en- 
compassing the issues."'*** United Gas Pipe was immediately followed by a 

140. 5 U.S.C. § .S51(6) (1970). 

141. Now 28 U.S.C. §§ 1336, 2325 (1970). 

142. 5 U.S.C. § 551(4) (1970). 

143. Id. § 553. 

144. 316 U.S. 407 (1942). 

145. 351 U.S. 192 (1956). 

146. 181 F.2d 796 (1950). 

147. 181 F.2d at 798. 

148. Id. at 799. 



234 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

similar ruling under the Civil Aeronautics Act'^" and has frequently been 
cited since, most recently by the Third Circuit in holding a newly promulgated 
regulation of the Securities and Exchange Commission (SEC) not an "order" 
directly reviewable in the court of appeals.'"''" As a result of such reasoning, the 
avenue for pre-enforcement review of regulations, even of those promulgated 
by agencies whose final adjudicative orders go directly to an appellate court, 
is often an action for injunction or declaration under general jurisdictional 
provisions in a district court. ^^^ This is, of course, the avenue for pre-enforce- 
ment challenges to the constitutionality of statutes. In fact, early decisions, 
influenced no doubt by the quasi-legislative nature of administrative regula- 
tions, tended to treat them like statutes for purposes of judicial review. ^^^ 

The United Gas Pipe rationale is in decline, however, both legislatively 
and judicially. In recent years. Congress, building on the precedent of price 
regulation during the Second World War,^^'"' has e.xpressly authorized direct 
circuit court review of agency regulations in such fields as automotive and 
consumer-products safety, occupational health, water and air pollution, and 
noise. '^^ The court that decided United Gas Pipe, having now undertaken 
direct review of regulations of both the FPC'^'' and the CAB,^^® has redefined 
its position: United Gas Pipe "has not been followed . . . where evidence has 
been assembled before the agency and is not challenged, and where the issues 
presented are legal and not factual."'" In such a case, there is "no need to 
have the matter adjudicated at the district court level in order to have an 
appropriate record compiled. It is the availability of a record for review 
and not the holding of a quasi judicial hearing which is now the jurisdictional 
touchstone."'^* The author of United Gas Pipe, Chief Judge Razelon, noting 

149. Pub. L. No. 85-791, § 18, 72 Stat. 947 (1958); Arrow Airways v. CAB, 182 
F.2d 705 (D.C. Cir. 19.50). 

KSO. PBW Stock Exchange, Inc. v. SEC, 485 F.2d 718 (3d Cir. 1973), cert, denied. 
416 U.S. 969 (1974). Tlic American Law Institute's Federal Seciritif.s Code would 
reverse the result in the PBW case by providing for direct circuit court review not only 
of a "final order" but al.so of "other final action" of the SEC, including rules. ALI Federal 
Sritritiks Code § 1415(a) (Tent. Draft No. 3, \97A). See also S. 2519, § 6(a). 93d 
Cong., 1st Scss. (1974) (SEC regulations approving, disapproving, or modifying rules 
of exchanges would be treated as "orders" and thus be reviewable in the courts of appeals). 

151. Sec. e.g., .Abbott Laboratories, Inc. v. Gardner, 387 U.S. 136 (1967) (Food and 
Drug .Administration). Similarly, in Canada it is only "quasi-judicial" as opposed to 
"administrative" orders that are reviewed directly in the appellate court. Federal Court 
Act 1970, 19 Eliz. 2, c. 1, § 28. 

l.'^2. Sec, e.<!.. Pacific States Box & Basket Co. v. White, 296 U.S. 176 (1935). 

153. Emergency Price Control Act of 1942, ch. 26, tit. II, § 204, 56 Stat. 31 (1942). 

154. 15 U.S.C. § 1394 (1970) (automotive safety); id. § 2060 (consumer products 
safety) ; 29 U.S.C. § 655(f) (1970) (occupational health and safety) ; 33 U.S.C. § 1369(b) 
(1970) (water pollution) ; 42 U.S.C. §§ 1857h-5(b) (1970) (air iwllution) ; id. § 4915(a) 
(noise). See also note 150 supra. 

155. City of Chicago v. FPC. 458 F.2d 731, 740-41 (D.C. Cir. 1971); New England 
Power Co. V. I'^PC. 467 F.2d 425 (D.C. Cir. 1972). The Supreme Court passed on the 
merits in the latter case without adverting to the issue of direct review, l-'PC v. New 
England Power Co., 415 U.S. 345 (1974). 

1.56. Deutsche Lufthansa Aktiengesellschaft v. CAB. 479 F.2d 912 (D.C. Cir. 1973). 

157. /(/. at 915-16. 

158. Id. at 916. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 235 

Professor Jafife's criticism that the decision divided review of a single agency 
between trial and appellate courts, has now abandoned it altogether. ^^^ 

Most recently, however, doubts have been raised once again about the 
appropriateness of direct appellate review of informal rulemaking. Concurring 
in Texas v. EPA}^^^ a challenge to the regulations for implementing air- 
quality standards in Texas, Judge Clark of the Fifth Circuit protested "the 
adverse effects flowing from the legislative mandate that judicial review pro- 
ceedings be injected into the court system at the appellate level. "^^^ He 
explained: 

Xo formal hearing has ever been held in this highly technical, 
factually complex matter. The administrative "record" upon which 
we had to base our review was comprised of only the sparsest of 
documentation, for it essentially evolved from an act of agency rule- 
making. . . . The writing judge was required to hold both pre- and 
post-argument conferences with counsel for the parties to enable the 
three of us as a court to comprehend the substance of the issues and 
conduct a minimally meaningful review. 

The subject matter of this action involves the health and welfare 
of millions of citizens, the continued business vitality of tens of 
thousands of firms and compliance expenditures costing billions of 
dollars. 

These extensive rights deserve a more orderly process of judicial 
reflection. ^"^ 

Judge Clark did not further specify what judicial processes would be more 
orderly or otherwise more appropriate. 

Still more recently, the First Circuit in South Terminal Corp. v. EPA'^^^ 
lamented that upon direct review the only way to obtain additional information 
as to facts not adequately established in a rulemaking proceeding is to remand 
to the agency: "The normal way courts evaluate a technical issue is through 
proceedings attended by expert witnesses."'*^ 

2. Appraisal of Need jar Appellate Court Factfinding. Whether direct 
appellate review of informal rulemaking makes good sense depends in the 
first instance upon whether United Gas Pipe was correct in its perception 
that the need for judicial trial of the facts renders the appeals court an in- 
ai)i)ropriate forum. When regulations are required to be based upon a trial- 
tyjje administrative record, as in the widely criticized Food and Drug 



1.S9. Environmental Defense Fund. Inc. v. Hardin, 428 F.2d 1093, 1098-99 & n.27 
(l).C. Cir. 1970) (Bazelon, J.) (dictum), ciling L. Jaffk, supra note 4, at 423. 

160. 499 \'.2(\ 289 (5th Cir. 1974). 

161. Id. at 321. 

162. 1(1. at 321-22. 

163. .S04 F.2(l 646 (1st Cir. 1974). 

164. /(/. at 665-66. .See also .52 Tf.xas L. Rf.v. 1014, 1021 (1974) (district court was 
a preferable forum for reviewing the SEC regulation challenged in PBW Stock Exchange, 
Inc. V. SEC, 485 {•.2d 718 (3d Cir. 1973), cert, denied, 416 U.S. 969 (1974), "because 
the ca.se raises factual issues [such as 'the rule's potential anticom|)etitive efTects'j that 
can be more efficiently determined in a trial court"). 



236 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Administration procedure/^^ facts relevant to the validity of the regulation 
present no problem: Validity is determined on the administrative record. 
More commonly, however, regulations are adopted after notice and opportu- 
nity for comment, with no express A PA requirement that the agency base its 
action on the record. ^^^ It is therefore conceivable that a judicial hearing may 
be necessary to elicit facts bearing upon the question of validity. 

The scope of judicial review of informal rulemaking is currently a matter 
of interesting debate. ^^^ Except where the agency is required to decide on a 
record, the APA limits review generally to such "legal" questions as whether 
agency action is within statutory authority or is "arbitrary."^®® At least one 
circuit court has held that the sole test of validity was "whether on the factual 
premise upon which the Commission acted" the rule adopted was arbitrary, 
for "if the factual premise itself were open to review, then it would be neces- 
sary for all general rule-making to include a trial-like hearing. "^''^ 

If the factual premises underlying a regulation are unchallengeable in 
court, there is obviously no need for a trial to determine their correctness. 
This approach, however, is clearly in disfavor, and properly so. Statutory 
authority, though a "legal" question, is often dependent upon the existence of 
certain facts. In Citizens to Preserve Overton Park, Inc. v. Volpe,'^'^^ for ex- 
ample, the administrator was authorized to approve federal funding of a 
highway through a park only if there was no "feasible and prudent alterna- 
tive. "^^^ The Court said a reviewing tribunal must determine "that the Secre- 
tary could have reasonably believed that in this case there are no feasible 
alternatives."^^" The further "legal" guarantee against arbitrariness similarly 
demands a factual investigation: It requires, according to Overton Park, a 
court to determine whether an administrator's decision was "based on a con- 
sideration of the relevant factors and whether there has been a clear error of 
judgment. "^^-^ These criteria, although enunciated in the context of informal 
adjudication, are equally appropriate in review of regulations, and they have 

165. 21 U.S.C. § 371(e) (1970). See Hamilton, Procedures for the Aiioption of 
Rules of General Applicability: The Need for Procedural Innovation in Administrative 
Rulemaking, 60 Calif. L. Rev. 1276 (1972). 

166. 5 U.S.C. §553 (1970). 

167. See Verkuil, Judicial Review of Informal Rulemaking, 60 Va. L. Re\'. 185 
(1974). 

168. 5 U.S.C. § 706 (1970). 

169. Superior Oil Co. v. FPC, 322 F.2d 601, 619 (9th Cir. 1963). The court in 
Superior Oil relied upon the leading case of Pacific States Bo.x & Basket Co. v. White, 
296 U.S. 176 (1935), where Mr. Justice Brandeis had written that if "any conceivable 
state of facts" would make a state regulation valid, those facts should be presumed to 
exist. But Pacific States Box did not hold the presumption irrebuttable; it merely held 
that it was not overcome by general allegations that the regulation served no valid 
purpose. 

170. 401 U.S. 402 (1971). 

171. Id. at 405. 

172. Id. at 416. 

173. Id. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 237 

been widely applied in such cases. ^'* We do not see how a court, without delv- 
ing into the facts, can responsibly determine whether or not a regulation meets 
a statutory requirement that emission standards be "achievable" by control 
systems that have been "adequately demonstrated,"^'^ or whether a motor 
vehicle safety standard is "practicable" and meets "the need for motor vehicle 
safety."^''® 

To say that courts should and increasingly do scrutinize the factual sup- 
port for regulations does not imply, however, that the relevant facts must be 
developed in court, much less by an evidentiary trial. The Office of Price Ad- 
ministration (OPA) legislation, for example, initially interposed before 
appellate court review an administrative appeal in which a full hearing could 
be had on any relevant facts. ^'^^ More significantly, while other direct-review 
statutes contain no comparable provisions, courts of appeals are increasingly 
finding ways to base their factual scrutiny of regulations on materials that 
were in some manner brought out before the rulemaking agency. 

The Occupational Safety and Health Act (OSHA), for example, makes 
this construction easy. Although it does not require the Department of Labor 
to conduct a trial-type hearing,^'** it explicitly makes the Secretary's deter- 

174. Sec, e.g., Portland Cement Ass'n v. Ruckelshaus, 486 F.2d 375, 402 (D.C. Cir. 
1973), cert, denied sub noui. Portland Cement Corp. v. Administrator, 417 U.S. 921 
(1974). Sec also City of Chicago v. FPC, 458 F.2d 731, 742 (D.C. Cir. 1971) ("[IJt makes 
little sense to require that the legislature articulate intelligible standards to govern 
agency action if realistic inquiry into wliether those standards are being followed were 
foreclosed." ) . 

175. See Portland Cement Ass'n v. Ruckelshaus, 486 F.2d 375 (D.C. Cir. 1973), 
eert. denied sub nam. Portland Cement Corp. v. Administrator, 417 U.S. 921 (1974). 

176. See Chrysler Corp. v. Department of Transp., 472 F.2d 659 (6th Cir. 1972). 

177. Emergency Price Control Act of 1942, ch. 26. tit. II, §§ 203-04, 56 Stat. 31 
(1942). A later amendment authorized the Emergency Court of Appeals (ECA) to pass 
on regulations, follov\ing entry of a civil or criminal judgment, without i)rior administra- 
tive hearing, but allowed a reference to the Administrator in such cases in lieu of a 
court trial. Act of June 30, 1944, ch. 325, tit. II, § 107, 58 Stat. 639; see ECA R. 18, 
following id. § 107, jjroviding tliat upon satisfactory offer of proof the court might refer to 
the .-\dministrator or hear the facts itself by depositions, interrogatories, affidavits, or 
"in open court." Section 204(c) gave the ECA, sitting in panels of three or more, the 
"powers of a district court" except that no preliminary relief against price regulations 
could be granted. Ch. 26, tit. II, § 204(c), 56 Stat. 32. 

178. Under 29 U.S.C. § 655(b)(3) (1970), the Secretary upon request must afford 
a "i)ublic hearing" on the proposed standards. Provisions in the same section that he 
designate "a time and place" for the hearing, and that the request be made during 
"the i)eriod provided for the submission of written comments," preclude reading the 
hearing requirement as satisfied by informal notice-and-comment procedure, as the Su- 
preme Court held with respect to the Interstate Commerce Act, 49 U.S.C. § 1(14) (a) 
(1970) (ICC freight-car allocation regulations) in United States v. Florida East Coast 
Ry., 410 U.S. 224 (1973). At the same time, however, the abandonment of an earlier 
House bill provision that would have required a trial-type hearing has led two circuit 
courts understandably to the conclusion that the hearing required is only a "legislative" 
one (not a quasi-judicial trial) characterized by speechmaking in support of or against 
the proposed regulation. Associated Indus, of N.Y.S., Inc. v. Department of Labor, 487 
F.2d 342, 348-49 (2d Cir. 1973); Industrial Union Dep't, AFL-CIO v. Hodgson, 499 
F.2d 467, 474 (D.C. Cir. 1974). Both courts, however, required that the Department's 
regulations be based on the "record." 487 F.2d at 349; 499 F.2d at 475-76. In order 
to facilitate the compilation of such a "record," the Department has modified its pro- 
cedures to allow, for example, some cross-examination. 29 C.F.R. § 1911.15 (1973). 



238 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

minations underlying a regulation "conclusive if supported by substantial 
evidence in the record considered as a whole. "^"^ This provision, the Second 
Circuit has held, imposes "some responsibility on the part of the Department to 
explain and support the proposals it is advancing, at least when these have 
been opposed on substantial grounds."^**" Since the statute does not make 
clear that the "record" that must support the regulation is the record made 
before the agency, it might be read as allowing new factual material to be 
presented in court. In accordance with the usual meaning of the term, how- 
ever, the Department of Labor by regulation construed the statute — correctly, 
according to the Second Circuit^^' — to require that the rulemaking itself be 
done "on the basis of a record to which a substantial evidence test . . . may 
be applied. "'^^ Thus, in remanding for want of record support, the court 
insisted that the Department should have presented "at the outset of the 
hearing some justification" for its proposed regulation.'*''' The District of 
Columbia Circuit, while concluding that policy, as opposed to factual, deter- 
minations do not lend themselves to evaluation in light of evidence, agreed that 
the statute recjuires the Secretary to make factual decisions on the record be- 
fore him, and judicial review is to be based on that record.'** 

Even statutes less explicit than OSHA have been construed by some cir- 
cuit courts to impose the same requirement. The National Trafific and Motor 
Vehicle Safety Act is silent as to hearings, '*'•'' and it says nothing about the 
standard of review. Yet it does require filing in the circuit court of the "record" 
on which the order setting the standard was "based. "''^^' The Sixth Circuit 
has read this requirement to mean that review is to be on the basis of that 
record and that the "substantial evidence" test applies.'*^ 



179. 29 U.S.C. § 655(f) (1970). 

180. Associated Indus, of N.Y.S., Inc. v. Department of Labor. 487 F.2d 342, 351 
(2d Cir. 1973). 

181. Id. at 349. 

182. Id. 

183. Id. at 351. ■ 

184. What we are entitled to at ail events is a careful identification by the 
Secretary, when his proposed standards are challenged, of the reasons why he 
chooses to follow one course rather than another. Where that choice purports 
to be based on the existence of certain determinable facts, the Secretary must, 
in form as well as substance, find those facts from evidence in the record. . . . 

Industrial Union Dep't, AFL-CIO v. Hodgson, 499 F.2d 467, 475-76 (D.C. Cir. 1974). 

185. 15 U.S.C. § 1392(b) (1970) provides only that safety standards shall be adopted 
in accord with the Administrative Procedure Act, which in the absence of S|)ecific 
statutory direction requires only notice and comment, 5 U.S.C. § 553 (1970). Sec 
Automotive Parts & Accessories Ass'n v. Boyd, 407 F.2d 330 (D.C. Cir. 1968) (upholding 
informal rulemaking). 

186. 15 U.S.C. § 1394(a) (1970). 

187. Clearly when factual issues are involved, including the issue of whether 
compliance is technologically feasible, the reviewing court must consider the 
record upon which the Agency based its order. . . . [A]ny rule which is re- 
quired to be, inter alia, "practicable" and "objective" must be reviewed on the 
basis of the data which the Agency considered in its promulgation, regardless 
of whether formal hearings were or were not held. 

Chrysler Corp. v. Department of Transp., 472 F.2d 659, 668 (6th Cir. 1972). But sec 
Boating Industry Ass'n v. Boyd, 409 F.2d 408, 411 (7th Cir. 1969) (rejecting applica- 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 239 

The Clean Air Act^^^ is devoid of any suggestion that judicial review of 
Environmental Protection Agency (EPA) regulations is to be based upon 
material that was before the Administrator. Yet in remanding an emission 
standard to the agency for inadequate disclosure of the basis for its initial 
proposal, the District of Columbia Circuit has gone a long way toward so 
holding. Regulations, wrote Judge Leventhal in Portland Cement Ass'n v. 
Ruckelshans,^^^ may not be promulgated on inadequate data 

or on data that, to a critical degree, is known only to the agency .... 
[I]nformation should generally be disclosed as to the basis of a 
proposed rule at the time of issuance fand court challenges must gen- 
erally be] limited to points made by petitioners in agency pro- 
ceedings.'"" 

None of these decisions squarely rejects an effort to bring before the 
court factual information that was not made a matter of record before the 
agency, for in none was that the issue. Yet the clear trend of such decisions 
is to base judicial review upon an administrative record, despite the absence of 
a trial-type hearing. If such is the law, there is no need for a judicial trial of 
facts relating to validity. 

This view of the reviewing function derives support from Mr. Justice 
Frankfurter's opinion for the Supreme Court in National Broadcasting Co., 
Inc. V. United States}^^ afifirming the decision of a three-judge district court 
upholding FCC chain-broadcasting regulations as adopted. Not only does 
the opinion state that "fo]ur duty is at an end when we find that the action 
of the Commission was based upon findings supported by evidence,"'"^ but it 
goes on explicitly to say that matters not before the FCC should not be con- 
sidered : 

The court below correctly held that its inquiry was limited to review 
of the evidence before the Commission. Trial de novo of the matters 
heard by the Commission and dealt with in its Report would have 
been improper.'"'^ 

Yet it would be too ha.sty to conclude that materials not placed in the 
record before the rulemaking agency may never be produced in court. The 
Consumer Product .Safety Act, for example, though requiring that the Com- 
mission file the "record of proceedings" on which it "based its rule" and 
providing that Commission findings be upheld only if supported by "sub- 
stantial evidence on tiie record taken as a whole," goes on to define the 

tion of the "substantial evidence" test to vehicle-safety standards because the statute does 
not re(|uire an agency hearing). 

188. 42 U.S.C. § 1857 (Supp. Ill, 1973). 

189. 486 F.2d 375 (D.C. Cir. 1973). 

190. Id. at 393-94. 

191. 319 U.S. 190 (1943). 

192. Id. at 224. 

193. Id. at 227. 



240 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

"record" to include not only such matters as the notice of proposed rulemaking 
and the comments received, but also "any other information which the Com- 
mission considers relevant to such rule."^^* This appears to embrace material 
not made public during the rulemaking proceedings and even, perhaps, ma- 
terial not considered by the agency in adopting the rule. Similarly, the Ad- 
ministrative Conference has recommended that the record on review of in- 
formal rulemaking include factual information not elsewhere included in the 
record "that was considered by the authority responsible for promulgation 
of the rule or that is proffered by the agency as pertinent to the rule."^®^ And 
the First Circuit in South Terminal Corp. v. EPA'^^^ recently indicated that 
additional material would sometimes be appropriate for introduction at the 
judicial review stage. 

If factual material may be presented for the first time in court, fairness 
surely demands that affected persons have an opportunity for rebuttal, either 
in court or before the agency, and neither alternative is very palatable. For the 
reviewing court to accept rebutting information and to make its own decision 
based upon material not considered by the rulemaking agency, as suggested 
in South Tenuinal,^^' would hardly be consistent with the statutory command 
that the agency make the regulations. What the Supreme Court said in re- 
fusing to allow new evidence in court upon review of a rate order seems 
equally applicable here: "To allow [the] . . . findings to be attacked or 
supported in court by new evidence would substitute the court for the admin- 
istrative tribunal as the rate making [or rulemaking] body."'^* The alterna- 
tive is a time-consuming remand to the agency for additional input. ^^^ 

194. 15 U.S.C. § 2060 (1970). 

195. ACUS Rec. 74-4, supra note 104, at tf 1(4) (adopted May, 1974). The sui)porting 
memorandum of the Committee on Judicial Review would limit material not considered 
by the agency to that "becoming available after the decision to promulgate the rule was 
made," and asserts tliat the recommendation does not decide whether the reviewing courl 
should be "limited to the information before the agency." Committee on Judicial Review, 
Administrative Conference of the U.S., Supporting Maiioranduiii Re ACUS Rec. 74-4. 
H 1(4), May. 1974. See also Chrysler Corp. v. Department of Transp., 472 F.2d 659, 669 
(6th Cir. 1972) (record on review for purposes of National Traffic and Motor X'ehicle 
Safety Act, 15 U.S.C. § 1392(b) (1970) includes "the technological and statistical data 
relied upon by the Agency in arriving at its conclusions"). 

The Administrative Conference has adopted somewhat contradictory positions with 
respect to what constitutes the record for review. Noth withstanding its recommendation 
for broad definition of the record on review, it agrees that in notice-and-comment rule- 
making an agency "to the extent feasible" should "make available documents, materials 
and public submission upon which the proposed rule is based." 2 ACUS Rec. 71-6, supra 
note 104, at 35 (1970-72). Contrast the Conference's retrograde Recommendation 72-5. 
2 id. at 66, that "in future grants of rulemaking authority . . . , Congress ordinarily 
should not impose mandatory procedural requirements otiier than those required by 5 
U.S.C. § 553." Partial reconciliation, probably unintended by the Conference, would 
result from making clear that Portlami Cement interprets rather than adds to § 553 ; 
perhaps it is time the Conference gave the whole problem a fresh look. 

196. 504 F.2d 646, 665 (1st Cir. 1974). 

197. Id. at 665-66. 

198. Tagg Bros. v. United States, 280 U.S. 420. 444 (1930) (Brandeis. J.), cited 
approvingly in NBC v. United States. 319 U.S. 190, 227 (1943) (a rulemaking case). 

199. This is clearly contemplated by the Consumer Product Safety Act. The statute 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 241 

A requirement that rules adopted by an administrative agency be sup- 
ported by a public record developed in a notice-and-comnient proceeding 
would, of course, depart markedly from the analogy of legislative enactment. ^^° 
While it seems difficult to deny that the development and rebuttal of a factual 
case to support proposed legislation would often be likely to improve the 
product, we think the situations distinguishable. It is traditionally acceptable 
for legislatures, not composed of technical experts, to act informally in the 
exercise of a judgment essentially more political than factual, to accommodate 
the clashing interests of diverse groups. The very purpose of statutory dele- 
gation to a specialized and expert agency, however, is to obtain a more pro- 
fessional, less political judgment. The statutes emphasize this purpose by laying 
down standards, often technically exacting, to govern the exercise of rule- 
making power, and by imposing procedural formalities — notice, comment and 
a concise statement of reasons — that are not applicable to the legislature itself. 
The judicial impulse to convert informal rulemaking into what might be 
called semi-formal rulemaking — more accurately, rulemaking based upon a 
record developed through somewhat structured dialogue between the agency 
and the affected parties — can be viewed as an effort to make the statutory op- 
portunity for comment a meaningful one in light of the statutory purpose. 
Moreover, significant procedural differences may be dictated by the sheer dif- 
ference in size between the two decisionmaking bodies. It would obviously not 
be feasible to demand that a legislature of several hundred members adopt even 

l)rovides for reniaiid when "the petitioner applies to the court for leave to adduce 
additional data . . . and shows . . . that there were reasonable grounds for the petitioner's 
failure to adduce such data ... in the proceeding before the Commission . . . ." 15 U.S.C. 
§ 206()(b) (1970). Sec Scalia & Goodman, Procedural Aspects of the Coiusioiier Product 
Safety Act. 20 U.C.L.A. L. Rev. 899, 923, 936 n.l44 (1973). 

The Environmental Protection Agency, stressing that a remand to counter agency 
information disclosed for the first time in court may postpone the effective date of im- 
portant regulations, argued against a loose definition of "record" proposed by the Ad- 
ministrative Conference, sec note 195 and accompanying text supra. Keciuiring disclosure 
of agency support material during the rulemaking proceeding and limiting the record 
essentially to matters so disclosed will, the EPA argued, "imi)rov[e] the process of 
informal rulemaking itself and lessen . . . the need for judicial review" by "facilitating 
timely and informed comment and increasing the likelihood that hard problems will be 
addressed before final promulgation," rather than "on remand from a reviewing court." 
The EPA memorandum, moreover, endorsed the reciuiremcnts imposed upon it in the 
Portland Ceiiioit case: "There seems to be no adequate justification for revealing such 
material only at tiie time of final promulgation (much less at the time the record for re- 
view is compiled)." EPA, Comments on Proposed ACUS Rec. 74-4, 1| 1(4); Preen- 

KORCE.MENT JUDICIAL REVIEW OF KuLES OF GENERAL APPLICABILITY 14, 22 (1974). MoSt 

dramatically, the EPA has integrated the Portland Cement procedure into its practice 
for adoption of effluent guidelines under the water pollution statute, 33 U.S.C. §§ 1251-92, 
1311-28. 1341-45, 1361-76 (Sui)p. Ill, 1973). Sec 38 Fed. Reg. 21202-06 (1973). 

Even if the Administrative Conference gets its way and an agency is permitted to 
bring before the court new factual material, the desirability of avoiding a remand may 
discourage remands in any case. See Scalia & Goodman, supra note 199, at 923. 

200. See Williams, Judicial Compulsion of Procedures Not Required by Section 553 in 
"Noticc-an<l-Comnient" Rulemaking 55-56 (1974) (unpublished draft submitted to the 
Administrative Conference of the United States): "It .seems api)ropriate that the same 
device employed (where necessary) to verify the factual underpinnings of legislative acts 
should be available for a court to verify the factual su|)port of agency rules . . . ." 



242 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

the "concise general statement" of reasons that the APA requires of rule- 
making agencies. Finally, the constitutional dignity of the legislature, its 
broad-based mandate from, and closeness to, the sovereign electorate, and 
above all the immediate political checks on irresponsible legislation make 
tolerable a procedural looseness in Congress that would be less acceptable in 
an administrative agency. 

A requirement that a public record be developed to support rules promul- 
gated by an administrative agency should not, however, be taken to require 
trial-type hearings for rulemaking. The agency must simply make public its 
supporting factual information in time for rebuttal : the method of presenta- 
tion is an entirely separate question. 

This requirement may. however, invest rulemaking proceedings with a 
degree of finality more common to quasi-judicial decisions. Carried to the 
extreme of requiring challenges within a short period, as in the Clean Air 
Act,^^^ finality can easily cut off important rights of unsuspecting persons — a 
danger much reduced in adjudication because only the parties are bound. We 
see similar dangers in limiting review of regulations to persons who partici- 
pated in the rulemaking proceedings ; there is no justification in policy for 
holding that persons not so participating can only sue in a district court,^"^ 
so long as review is, as we have advocated, limited to the administrative record. 
Even this limit may cut off legitimate claims that could not reasonably have 
been anticipated ; but if the preservation of reasonably unanticipated claims 
is thought to justify allowing reexamination of regulations on the basis of new 
information, we think it more consistent with the theory of delegated rule- 
making that the data be first presented, and the initial reassessment made, in 
the rulemaking agency, not in court. 

Further, even under the Consumer Product Safety Act,^"^ where the 
agency may bring before the court materials it did not earlier make public, 
there may be no need for taking evidence in court as to the validity of a regu- 
lation. That statute, in the first place, speaks of "filing" such material as a 
part of the record, just as if it had been introduced formally before the agency ; 
it does not contemplate presentation by witnesses in open court. And if a 
party challenging the regulation wishes to rebut the new material, the statute 
envisions a remand to the agency, not a judicial trial. ^''^ 

Finally, apart from such specific statutory language, the traditional dis- 
tinction between "legislative" and "adjudicative" facts suggests that oral testi- 

201. 42 U.S.C. § 1857h-5(b) (Supp. Ill, 1973). 

202. See Gage v. AEG, 479 F.2d 1214 (D.G. Gir. 1973), construing the Hobbs 
Act, 28 U.S.G. § 2344 (1970), which allows direct circuit court review by a "party" to a 
proceeding made reviewable by the Atomic Energy .Act, 42 U.S.G. § 2239 (1970), which in 
turn includes regulations. 

203. 15 U.S.G. §§ 2051-81 (Supp. Ill, 1973). 

204. See note 199 supra. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 243 

iiiony will not be the standard method of presentation if a court accepts new 
factual material respecting tlie validity of a regulation. Professor Davis has 
stated: 

Adjudicative facts are the facts about the parties and their activities, 
businesses, and properties. . . . Legislative facts do not usually con- 
cern the immediate parties but are general facts which help the tri- 
bunal decide questions of law and policy and discretion. . . . 

. . . Because the parties may often have little or nothing to 
contrilnite to the develoi)ment of legislative facts, the method of trial 
often is not required for the determination of disputed issues about 
legislative facts. 

. . . and should not he rc(|iiired.-'"'' 

The facts upon which regulations of general applicability are based are likely 
to be legislative facts in this sense. Professor Karst has forcefully argued for 
more attention to adequate presentation of legislative facts in constitutional 
cases and has cited instances in which such matters were established by evi- 
dence at trial. ^°^ The First Circuit's dictum in South Terminal indicates that 
such a presentation would be proper in district court review of a regulation. 
Yet as Karst points out, it is common practice to establish legislative facts in 
court, when they are not sim])ly noticed by the court on its own, through such 
informal means as affidavits or Brandeis briefs. It would hardly be surprising 
if the same were done with legislative facts in rulemaking cases, especially since 
no trial is usually required for development of such issues before the agency 
itself. 

The foregoing survey of judicial review of informal rulemaking suggests 
that the absence of a trial-type record may not present as substantial an ob- 
stacle to direct court of appeals review as might appear at first blush. Often the 
sole issues will involve pure statutory construction. Sometimes a court may 
still adhere to the old-fashioned view that it may not inquire into the facts. 
Increasingly, we believe, factual matters will be determined on the basis of 
material that was before the agency. And if new matter is allowed, it seems 
likely to be presented either as a part of the "record" relied on below, or before 
the agency on remand, or as legislative fact in the form of a Brandeis brief. 
We do not say the occasion for taking evidence in court will never arise.^*" 

205. K. Davis, Administrative Law Text, § 7.03, at 160 (3d ed. 1972). 

206. Karst, Legislative Facts in Constitutional Litigation, 1960 Sup. Ct. Rev. 73. 
{•"or additional examples, see Williams, supra note 200, at 55. 

207. In at least one case under the Emergency Price Control Act of 1942, CJi. 26, 
tit. II, 56 Stat. 31, the Emergency Court of Appeals, after an initial administrative re- 
view hearing and not one but two remands, itself heard additional evidence bearing on 
the validity of a regulation. Heinz v. Bowles, 149 F.2(l 277 (Emer. Ct. App. 1945). And 
in Texas v. EPA, 499 F.2d 289 (5th Cir. 1974) a single member of the appellate i)anel 
conducted conferences with counsel to straighten out matters of fact. Professor Steven 
Williams has called attention to an old Supreme Court ca,sc, Houston v. St. l.ouis 
Independent Packing Co., 249 U.S. 479 (1919), cited in Williams, supra note 200, at .53-54, 
in which the validity of a regulation was determined on the basis of court testimony. 

Professor Williams has also noted some pieces of legislative history suggesting that 



244 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

But on the strength of our examination to date, we think such occasions may 
be the exception rather than the rule. When they occur they can be dealt with 
in a variety of ways short of a cumbersome trial before three judges: by con- 
ferences as in Texas v. EPA,^^^ by a hearing before a master^"^ or perhaps 
before a single circuit judge, ^^" by remand to the agency, or, statute permitting, 
by transfer to a district court for hearing.^^^ Admittedly, any of these pro- 
cedures would be burdensome in the particular case. If we are right, however, 
that they will rarely be necessary, it would seem unfortunate to sacrifice the 
obvious economies of direct review in the many manageable cases in order to 
avoid an occasional burden. 

There are, however, further complications respecting the possible need for 
judicial factfinding in review of informal rulemaking. First, for reasons noted 
in connection with review of adjudication, factual issues relating to motions for 
interim relief can be handled by requiring the agency to pass first upon such 
motions, or by reference to a master, or by summary proceedings before the 
appellate court itself. *^^ Second, although facts outside the agency record may 
be relevant to a determination of standing,-'^ an issue largely foreign to re- 
view of quasi- judicial orders, the usual dispute, one suspects, concerns not the 

Congress in enacting the APA contemplated judicial evidence-taking as a matter of 
course to determine tlie validity of non-record regulations: 

Where a rule or order is not required by statute to be made after opportunity 
for agency hearing and to be reviewed solely upon the record thereof, the facts 
pertinent to any relevant question of law must be tried and determined de novo 
by the reviewing court respecting either the validity or application of such 
rule or order — because facts necessary to the determination of any relevant ques- 
tion of law must be determined of record somewhere and, if Congress has not 
provided that an agency shall do so, then the record must be made in court. 
H.R. Rep. No. 1980, 79th Cong., 2d Sess. (1946), quoted in Williams, supra note 200, 
at 52. Sec also S. Rep. No. 572, 79th Cong., 1st Sess. (1945). This statement purported to 
explain 5 U.S.C. § 706(2) (f) (1970), which provides in relevant part: 

The reviewing court shall ... set aside agency action, findings and conclusions 
found to be . . . unwarranted by the facts to the extent the facts are subject 
to trial dc novo by the review ing court. 
Regardless of the committee's intention, this provision appears not to prescribe when a 
trial is to be had, but only to indicate the scope of review when some other law 
prescribes trial de novo. In any case, the imposition of procedural requirements looking 
toward development of a non-adjudicative record, as in the Portland Cement case, has 
substantially undermined the premise of the committee position, and Professor Williams 
affirms "the apparent rarity of judicial trial" of facts relating to validity. Williams, 
supra note 200, at 55. 

208. 499 F.2d 289 (5th Cir. 1974). 

209. For the comparable problem of ascertaining facts in a proceeding for contempt 
in the court of appeals, see notes 41-51 and accompanying text supra. 

210. Unlike the three-judge district court, 28 U.S.C. § 2284 (1970), the circuit 
court is not clearly disabled by statute from delegating the evidence-taking function to a 
single judge. But see id. § 46(b) (authorizing "hearing" as well as "determinations" of 
cases by three circuit judges). Cf. Texas v. EPA, 499 F.2d 289 (5th Cir. 1974). 

211. 28 U.S.C. § 2347 (1970) ("when a hearing is not required by law and a 
genuine issue of material fact is presented"). The same section authorizes a reference to 
the agency for additional evidence where there are "reasonable grounds for failure to 
adduce the evidence before the agency." 

212. See notes 41-51 and accompanying text supra. 

213. Cf. SCRAP V. United States, 412 U.S. 669 (1973). 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 245 

extent of the plaintiff's interest but its legal sufficiency, a subject for argument 
not proof. 

More important, the discussion so far has assumed that the regulation is 
attacked on its face, while it may be possible for an affected person to challenge 
the validity of a regulation as applied to his individual situation.^** Individual- 
ized facts — for example, the absence of space at the petitioner's plant to in- 
stall a pollution-control device — are not likely to have been brought before 
the agency ; it would be cumbersome to provide a hearing on all such questions 
within the rulemaking process. Moreover, the facts giving rise to a claim of 
individual hardship are almost by definition "adjudicative" rather than "legis- 
lative," so that a trial-type hearing — such as is seldom afforded in rulemaking 
— may be constitutionally required. ^^^ One court has concluded that such 
challenges may be brought in a court of appeals.^'" another court, noting the 
impracticability of providing an adequate liearing on individual claims during 
rulemaking, disagreed. -^^ If this latter view prevails, review of agency regula- 
tions will be bifurcated: Facial validity will be determined by the circuit 
courts, validity as applied by the district courts. 

That neither the rulemaking process nor the appellate court is well- 
equipped to determine the facts bearing on applicability of a regulation to 
individual cases seems manifest : the practical significance of this problem in 
determining the appropriate forum for judicial review, however, is less clear. 
Truly individualized facts should as a matter of statutory construction rarely 
render a regulation invalid as applied: The very purpose of a regulation is to 
avoid the necessity of determining the appropriate rule on a case-by-case basis. 
Section 111 of the Clean Air Act, for instance, prescribes that new-source 
performance standards "reflect the degree of emission limitation achievable 
through the application of the best system of emission reduction which (taking 
into account the cost of achieving such reduction) the Administrator deter- 
mines has been adequately demonstrated."-^^ One would hardly expect the 
EPA to make a plant-by-plant determination as to the best practicable control 
technology in setting such a standard. ^^^ On the other hand, determining 

214. Getty Oil Co. v. Ruckeishaus, 342 F. Supp. 1006 (D. Del. 1972), rev'd in part on 
other (/rounds, 467 F.2d 349 (3d Cir. 1972) ; Buckeye Power, Inc. v. EPA, 481 F.2d 162, 
173 (6th Cir. 1973) ; Gage v. ARC, 479 F.2d 1214. 1218-19 (D.C. Cir. 1973). 

215. Sec Londoner v. Denver, 210 U.S. 373 (1908). 

216. Getty Oil Co. v. Ruckelsliaus, 324 F. Supp. 1006 (D. Del. 1972). 

217. Buckeye Power. Inc. v. EPA, 481 F.2d 162, 173 (6th Cir. 1973). 

218. 42 U.S.C. § 1857c-6(a)(l) (Supp. Ill, 1973). 

219. Cf. Heinz v. Bowles, 149 V.2(\ 277. 281 (Enier. Ct. App. 1945), where the court 
interpreted a statute requiring maximum prices to be "generally fair and equitable": 

If tlie price enabled most of the non-processing slaughterers to operate profitably. 

the regulation would not be rendered invalid by the fact that an occasional 

marginal producer in the group could not stay in business under the established 

ceilings. 
Indeed, when individual hardship is deemed to excuse one from compliance, statutes 
commonly provide a quasi-judicial variance procedure in which the expert agency may 



246 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

whether whole classes of emission sources require separate treatment^^" in- 
volves legislative facts and is the very sort of question with which the rule- 
making process is designed to deal. Thus, the danger that individual facts 
may have to be established in a court of appeals to determine the validity of a 
regulation as applied may be more theoretical than real ; many such conten- 
tions can appropriately be disposed of by the equivalent of a demurrer without 
trial. 

In short, unless the court takes what we think would be the unusual and 
misguided step of allowing new factual evidence on the issue of facial validity, 
the occasions for factfinding in pre-enforcement review even of informal 
rulemaking seem likely to be relatively minor. We are strengthened in this 
conclusion by the fact that the agencies responding to our questionnaire re- 
port that direct review of regulations has caused no practical problems. ^^^ If 
other considerations cut strongly in favor of direct appellate review of such 
regulations, it may be inappropriate to let the tail wag the dog by requiring a 
trial court forum rather than allowing a modicum of awkwardness at the 
appellate level. 

The most compelling argument for bypassing the trial courts in rule- 
making cases is that regulations of general applicability, almost by definition, 
are relatively more significant than individual adjudications. Affecting often 
an entire industry or class of persons, the question of the validity of such 
regulations is quite likely to end up in a court of appeals anyway. Unless fact- 
finding requirements substantially discommode the circuit courts, it makes 
sense to avoid the delay and expense of prior district court litigation.^^^ This 

determine the facts. E.g., 42 U.S.C. § 1857c-5(f) (Supp. Ill, 1973) (air pollution). 
Exhaustion of such an administrative remedy should perhaps be a prerequisite to judicial 
attack on a regulation as applied. See Commonwealth Edison Co. v. Pollution Control 
Bd., III. App. 3d , NE.2d , (1st Dist. 1974) 

(limiting direct appellate review of regulations to questions of facial validity: confining 
individual hardship cases to seeking variances from the agency). 

220. E.g., Heinz v. Bowles, 149 F.2d 277, 281 (Emer. Ct. App. 1945) (invalidating 
application of meat-price regulation to non-processing slaughterers because "a common 
economic situation . . . sets them apart from the rest of the industry"). 

221. See letters to Antonin Scalia, Chairman of the Administrative Conference 
from General Counsel Office of the AEC, Oct. 7, 1974, Dep't of Transportation (high- 
way safety), Oct. 30, 1974, and Consumer Product Safety Commission, Nov. 18, 1974. As 
the CAB has pointed out, circuit courts sometimes must review the validity of regulations 
without benefit of district court factfinding when regulations are challenged on appeal 
from a quasi-judicial enforcement order. Sec letter from Thomas J. Heye, CAB General 
Counsel, to Antonin Scalia, Chairman of Administrative Conference, Oct. 18, 1974, citing 
Great Lakes Airlines, Inc. v. CAB, 291 F.2d 354, 367 (9th Cir. 1961) (the agency's trial 
examiner had excluded evidence going to the validity of the regulations ; the court said 
that if facts were necessary a remand would be in order but held the regulations valid as 
a matter of law). 

222. The CAB, arguing that "interposing a district court proceeding between agency 
decision and appellate decision has achieved nothing but delay," has asked Congress to 
make its regulations reviewable by the circuit courts under the Hobbs Act, 28 U.S.C. 
§ 2344 (1970). Sec letter from Thomas J. Heye, CAB General Counsel, to Antonin Scalia, 
Chairman of Administrative Conference, Oct. 18, 1974; S. 2609, 92d Cong., 1st Sess. 
The Federal Reserve Board has asked the courts to hold its regulations "orders" sub- 
ject to direct appellate court review under the Bank Holding Company Act, 12 U.S.C. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 247 

may be especially important when Congress deems time to be of the essence, 
as it did with wartime price regulations and more recently with air and water 
pollution. 

3. Appraisal of Other Objections. The problem of bifurcated review in 
the area of informal rulemaking cuts both ways for many agencies. On the 
one hand, there is the often-voiced objection223 that it is undesirable to have 
orders reviewed by the appellate court and regulations by the district court, 
as is the case under many current decisions. On the other, there is the likeli- 
hood that the validity of regulations may in any event be determined by trial 
courts in enforcement actions that cannot very well be brought in a circuit 
court because of the frequent need for a fact hearing on the question of viola- 
tion. One answer would be, as in the Clean Air Act, to forbid the raising of 
invalidity as a defense ;--* this is a harsh measure that may trip the unwary 
litigant who did not suspect the regulation was meant to apply to him, and we 
do not recommend it absent the most stringent necessity- — -as, for example, in 
the case of price control — for expeditious final determination. ^^^ Nor would we 
recommend certification of validity questions in enforcement proceedings to the 
appellate court, ^^'^ for that would split a single case between two forums, with 
consequent delay and expense. ^^'^ The only other way to avoid all bifurcation 
would be to make not only regulations, but all orders, reviewable in the district 
courts ; but that would impose substantial additional burdens on courts and 
litigants alike. All of these alternatives seem to us much worse than a little 
bifurcation ; after all, the circuit courts can review determinations of validity 
made in enforcement cases, so any disuniformity or other damage done by 
bifurcated review will be short-lived. 

The concurring opinion in Texas v. EPA,^"^^ calling for district court 
review of regulations, seems to have focused not only upon the role of the 
trial judge in the taking of evidence but also upon his role as fact sifter. The 
thesis seems to be that, quite apart from the necessity of a hearing, judicial 
economy is served and an ultimately correct decision made more likely if a 

§ 1848 (1970). Sec letter from Thomas J. O'Connell, General Counsel of the Federal 
Reserve Board, to Antonin Scalia, Chairman of the Administrative Conference, Oct. 
10, 1974. 

223. Sec, e.g., L. Jaffe, supra note 4, at 423; Mullan, The Federal Court Act: A 
Mistntidcd Attempt at Adiiiinistrative Lazv Reform f, 23 U. Toronto L.J. 14, 16, 29 (1973). 

224. 42 U.S.C. § 1857h-5(b) (Supp. Ill, 1973). 

225. See Yakus v. United States, 321 U.S. 414 (1944) (wartime need for expedition 
in price control). 

226. Such certification is required for substantial constitutional questions arising in 
enforcement cases under section 211 of the Economic Stabilization Act of 1970 (Tempor- 
ary Emergency National Court of Appeals), 12 U.S.C. A. § 1904 (Supp. 1974) as 
amended, Act of Aug. 24, 1974, Pub. L. No. 93-387, § 211, 88 Stat. 750. Sec, e.g., 
DeRieux v. The Five Smiths, Inc., 499 F.2d 1321 (Temp. Emer. Ct. App. 1974). 

227. Cf. Note, Consequences of Abstention by a Federal Court, 73 Harv. L. Rev. 
1358 (1960) (the delays attending the practice of abstention by federal courts to ascer- 
tain state views on state law). 

228. 499 F.2d 289, 321-22 (5th Cir. 1974) ; .^ee text accompanying notes 160-62 supra. 



248 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

trial judge first undertakes the formidable task of organizing and understand- 
ing very complex and informal factual records. A mammoth case such as that 
one, involving the validity of a variety of provisions of Texas's plan for imple- 
menting air-quality standards, obviously imposes a considerable burden on 
any court. While this very complexity makes it all the more imperative that 
the appellate court ultimately decide, it does not require that three judges do 
the preliminary digging. But there is no indication that this is what happened 
in Texas; the complaint is that the burden was great for the writing judge. 
To the extent that the argument is that prior district court scrutiny facilitates 
correct appellate decision, we recognize the force of the point. The Supreme 
Court surely benefits when difficult issues have first been tackled by the circuit 
courts. The question remains whether in rulemaking cases the gain from the 
input of a single district judge is great enough to justify the added burden. It 
should be borne in mind that not all rulemaking cases are as complex on their 
facts as Texas v. EPA. 

This observation brings to mind a related one: Not all regulations are 
of equal general importance. To provide for direct review of all regulations 
because some of them are of great import would be overhasty ; it might risk 
burdening the courts of appeals with a myriad of trivial cases that might better 
end in the district courts. Once again, the uncertainties and burdens of juris- 
dictional litigation counsel against simply making "important" regulations 
directly reviewable upon individual determination of importance, as they 
counsel against the District of Columbia Circuit's apparent position^^** that 
the proper forum turns on the necessity for judicial factfinding in the indi- 
vidual case. The best approach would seem to be for Congress to consider 
separately each category of regulations with a view toward ascertaining 
whether they are likely to be of sufficient importance to justify bypassing the 
district courts. In this light, it would seem to make eminent sense that the 
circuit courts have original review authority over such broad and significant 
regulations as those setting national air-quality standards or the emission 
standards for achieving them.--"^" In such cases, it should be added, the prob- 
ability and desirability of further review in the circuit courts strongly argues 
that those courts would not be substantially relieved if such cases were initially 
reviewed in the trial courts. 

C. Informal Adjudication 

This amorphous and miscellaneous category, constituting "the vast bulk 
of administrative adjudication, "^^^ is defined by a cliaracteristic highly rele- 

229. Deutsche Lufthansa A.G. v. CAB, 479 F.2d 912 (D.C. Cir. 1973). 

230. As now provided in 42 U.S.C. § 1857h-5(b) (Supp. Ill, 1973). 

231. Attorney General's Committee on Administrative Procedure, Final Rep. 
35 (1951), cited in Gardner, The Procedures By Which Informal Action is Taken, 24 
Ad. L. Rev. 155, 156 (1972). 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 249 

vant to the choice of a trial or appellate forum for review: the absence 
of a record based upon a formal adjudicatory hearing. Subject to that con- 
straint, the myriad types of adjudication vary almost infinitely in procedural 
characteristics — in opportunity for input by interested parties, scope and 
thoroughness of administrative investigation, nature of the administrative 
record, if any, and so on. They range from unstructured discretionary decisions 
of enforcement agencies whether to prosecute to quasi-formal decisions of 
the Comptroller of the Currency — governed by specific statutory criteria, after 
extensive investigation, and upon information received informally from all in- 
terested parties — whether to grant a bank charter. ^•'^- This alone would make 
useful generalization concerning the appropriate forum for review extremely 
difficult. The difificulty is compounded, however, by our general lack of knowl- 
edge about the nature of the beast. In contrast to the formal processes of 
administrative action, the "procedures which govern informal action by the 
Government have until the last few years received almost no attention, "-•'*^ 
and most of this complex and diverse terrain remains unexplored. The ques- 
tion of the appropriate forum depends upon more basic variables — such as the 
nature of the issues typically raised on review, the character of the admin- 
istrative record, and the procedures available to the reviewing court to supple- 
ment that record when necessary — -all of which are themselves highly uncertain. 
The state of our knowledge with respect to the relevant administrative prac- 
tices, and the state of the law with resi)ect to the permissible judicial techniques 
are alike fluid and developing. 

The informal orders of agencies which do little or no formal adjudication 
are ordinarily reviewed in district courts in suits for declaratory or equitable 
relief under the general review provisions of the APA. The jurisdictional sit- 
uation is less clear, however, in the case of agencies whose main business is 
formal adjudication and some or all of whose "orders" are reviewable in cir- 
cuit courts under specific statutory review provisions. In FPC v. Metropolitan 
Edison CoP'^ the Supreme Court held that such a provision applies only to 
formal orders. The statute provided for review of orders arising out of "pro- 
ceedings under the Act" and required a transcript of the record to be filed 
with the appellate court. -•*•''' The Court ruled it inapplicable to an order com- 
mencing an investigation to determine "the ownership, operation, management, 
and control" of the plaintiff company. Not content to hold the order nonre- 
viewable because of its "procedural" and "preliminary" character, the Court 
further declared that the .statutory "orders" were limited "to orders of a 
definitive character dealing with the merits of a proceeding before the Com- 

232. Sec Camp v. Pitts, 411 U.S. 138 (1973), discussed at notes 253-54, 258 and 
accompanying text infra. 

233. Gardner, supra note 231, at 156. 

234. 304 U.S. 375 (1938). 

235. 16 U.S.C. § 825/(b) (1970). 



250 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

mission and resulting from a hearing upon evidence and supported by findings 
appropriate to the case."-''^" In this aspect, however. Metropolitan Edison has 
not generally been followed. Regulatory orders, for example, suspending^^'' or 
refusing to suspend""^^ a proposed rate, or accepting a i)roposed rate for 
filing,^^^ have been held reviewable by circuit courts even in the absence of a 
formal record. The appellate courts tend to approach the jurisdictional ques- 
tion in an ad hoc, pragmatic way, as two decisions of the District of Colr.mbia 
Circuit illustrate. 

In Environmental Defense Fund, Inc. v. Hardin"^*^ the court accepted 
jurisdiction to review the Secretary of Agriculture's refusal to act on a request 
that he suspend the registration of DDT pending a cancellation proceeding. 
Review of this important interlocutory order was surely appropriate since later 
review would be of no use. Since there was no administrative record, it was 
argued tliat mandamus in the district court was the sole remedy, although the 
final order in the cancellation proceeding would be taken to the court of ap- 
peals. The court disagreed: 

There is some authorit} . . . that only a trial court is capable of re- 
viewing orders issued without the benefit of formal factfinding based 
on a record. That view has been criticized, however, for dividing be- 
tween two courts the review of the various orders involved in a single 
administrative proceeding. Whatever its continuing vitality, that line 
of authority is especially inappropriate here, where the facts in issue 
lie peculiarly within the special competence of the Secretary. The dis- 
trict court could do no more than remand to the Secretarv, as we do 
here . . . .^^i 

Recognizing that "meaningful judicial review" would be impossible without 
more of a record, the court remanded the case to the Secretary for a fresh 
determination or a statement of reasons. 

In Medical Conmiittcc for Human Rights v. SEC^*^ the same court enter- 
tained a challenge to the SEC's decision not to prosecute an alleged violation 
of its proxy rules. There had been no adjudicatory hearing; the action was not, 
as in Hardin, ancillary to any pending or potential formal proceeding; and the 
substantive questions could have been raised in a private action in a district 
court. The court of appeals, however, was held the "more appropriate" forum 



236. 304 U.S. at 384. 

237. Pliillips Petroleum Co. y. FPC, 227 F.2d 470, 475 (10th Cir. 1955). cert, 
denied sul> iioiii. Michigan Wisconsin Pipe Line Co. v. Phillips Petroleum Co., 350 U.S. 
1005 (1956). 

238. Isbrandtsen Co. v. United States. 211 F.2d 51 (D.C. Cir.), cert, denied sul> 
notn. Federal Maritime Bd. v. United States, 347 U.S. 990 (1954). 

239. Cities Service Gas Co. v. FPC, 255 F.2d 860, 862-63 (10th Cir.), cert, denied 
sit!) noni. Magnolia Petroleum Co. v. Cities Service Gas Co., 358 U.S. 837 (1958). 

240. 428 l'.2d 1093 (D.C. Cir. 1970). 

241. Id. at 1098-99. 

242. 432 F.2d 659 (D.C. Cir. 1970). 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 251 

because the petitioner "does not seek to contest any matters of fact which 
would require a trial de novo."^*'' 

The absence of a formal adjudicatory record justifies, we think, a pre- 
sumption in favor of district court review. Without such a record, a judicial 
trial will very often be necessary to determine either the basis upon which the 
administrator acted or the facts relevant to an evaluation of his action. Further- 
more, even where the issues raised are strictly legal, a district court opinion 
may, in the absence of a formal opinion at the administrative level, be useful 
to the circuit court in organizing the case for appellate review. 

To be sure, we suggested earlier^''^ that, in general, notice-and-comment 
rulemaking should be reviewed in courts of appeals despite the absence of a 
trial-type hearing record, and that if further factfinding became necessary 
the appellate court could refer the case to a district court, a master, or the 
agency itself. The same treatment might be thought equally appropriate for 
informal adjudication. There are, however, at least three pertinent differences, 
of degree if not of kind, between the two types of informal action. 

First, review of rulemaking more often presents questions of law or 
questions of legislative fact that can be resolved on the basis of Rrandeis briefs ; 
conversely, adjudication usually hinges on questions of specific fact that may 
have to be tried. .Second, while the A PA prescribes no procedures at all for 
non-record adjudication, it does impose a degree of structure upon the rule- 
making process. 2''^ The requirements that interested persons have an oppor- 
tunity at least for written comment and that the agency provide a general 
statement of reasons virtually assure that an appellate court will have a mean- 
ingful record to review. While it is true that in many instances informal adjudi- 
cation also produces an administrative record, the nature and scope of the 
records vary widely from one type of action to another and cannot provide the 
same assurance that appellate review will be feasible. Finally, review of rule- 
making much more often involves questions of general importance or broad 
impact, cpiestions that will eventually be brought to the appellate courts in any 
event and cannot be postponed without major social costs. Review of informal 
adjudication, on the other hand, is more likely to affect only the immediate 
parties and in most cases would not be appealed beyond the district courts. 

The distinctions we have drawn do not cut cleanly. Informal adjudica- 
tion, we repeat, frequently does generate an administrative record suitable for 
the purpose of review. Moreover, scholars and practitioners of administrative 
law are coming to recognize a need for greater procedural regularity in the 
field of informal agency action.^''" The reforms they contemplate — including a 



243. Id. at 672. 

244. See notes 167-222 and accompanying text supra. 

245. 5 U.S.C. § 5.S3 (1970). 

246. Gardner, supra note 231. 



252 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

requirement that the achiiinistrator state the facts and reasons upon which he 
bases his decision^'''' — would, as a byproduct, yield more adequate records. 

Furthermore, deficiencies in the administrative record which make it un- 
suitable for review can often be remedied without resort to a judicial trial. The 
Hardin case is sufficient illustration. It is true that the court's decision to re- 
mand the case to the Secretary for a statement of reasons, and its assumption 
that a district court would have had no choice but to do the same, is somewhat 
inconsistent with the approach taken by the Supreme Court two years later 
in Citizens to Preserve Overton Park, Inc. v. Volpe.^^^ The Court remanded 
to the district court to determine, either by testimony or affidavits, the "factors 
that were considered" by the Secretary of Transportation or his "construction 
of the evidence"-^^ in deciding, without a hearing or formal administrative 
findings, that there was no "feasible and prudent alternative" to building a 
highway through a park.^^** Overton Park makes clear, however, that the 
absence of formal administrative findings or reasons does not necessarily call 
for a remand to the agency. ^^' Applying the same approach in Hardin, the 
District of Columbia Circuit might have disclaimed jurisdiction on the ground 
that the district court was the appropriate forum in which to obtain an ex- 
planation for the Secretary's refusal to suspend DDT. Yet it might equally 
have concluded that if the explanation for the Secretary's action was to be 
elicited by affidavit or testimony, rather than by a remand to the agency, district 
court review would be superfluous, for a court of appeals is no less able than 
a district court to secure the production of such evidence. This conclusion 
was impossible in Overton Park, not only because of the absence of a statute 
giving courts of appeals jurisdiction to review orders of the Secretary of Trans- 
portation, but also because the question of whether the Secretary had made 
an independent judgment or merely rubber stamped a decision of the local 
city council was a disputed matter possibly requiring oral testimony and cross- 
examination. Normally, one assumes, an administrator's own explanation of 
the grounds upon which he acted, "post hoc" rationalization though it may be, 
would be accepted at face value and could be adequately communicated by 
affidavit. 

Findings and reasons, however, are not the only prerequisite to meaning- 
ful judicial review ; the court may also need some factual basis on which to 
evaluate them. This poses no serious problem for circuit court review in cases 
where an extensive administrative record exists in the form of written ma- 
terials that can be packaged and filed in the reviewing court as easily as a 
hearing transcript. The difficulties arise in cases where the record, if there is 

247. Id. at 164. 

248. 401 U.S. 402 (1971) ; see notes 170-73 and accompanying text supra. 

249. Id. at 420. 

250. Id. at 405. 

251. Id. at 409. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 253 

one. is less complete, or less tidy, or where the question of what information 
was before the administrator when he acted is disputed or uncertain. In such 
cases, a judicial trial may sometimes be necessary in order to reconstruct the 
administrative record. 

In evaluating- the frequency with which a judicial trial may be necessary, a 
key consideration is the extent to which agency action can properly be sus- 
tained or challenged on the basis of evidence, judicially adduced, that was not 
before the agency when it acted. Tf such evidence is ruled out, and the trial 
limited to a reconstruction of the administrative record, district court review 
will obviously be needed much less often. In Overton Parfc,-^^ and later more 
explicitly in Camp v. Pitts.^^'^ the Supreme Court indicated that in determining 
whether an order is arbitrary or capricious, "the focal point for judicial review 
should be the administrative record already in existence, not some new record 
made initially in the reviewmg court. "^■'''* This position is in keeping with the 
traditional understanding that "the reviewing function is one ordinarily 
limited to consideration of the decision of the agency or court below and of 
the evidence on which it was based. "^•''■''' Yet it is hard to take these statements 
entirely at face value. In the class of situations with which we deal, the party 
tendering new evidence may have had no opportunity to be heard at the 
administrative level. To deny him that opportunit}- in court might be a viola- 
tion of due process. '^^ I'^ven if not, it would often reduce judicial review to a 
rubber stamp, especially where the jjroffered evidence tended to ex])Ose the 
administrative record as a product of superficial and inadequate investigation. 
To uphold the administrator's action merely because it is supported by such a 
record would be to reward him for wearing blinders. In Overton Park,^^'' 
and again in Cauip,-^^ the Court acknowledged that new evidence may be ap- 
propriate where the agency's factfinding jjroceflures are inadequate, and this 
exception may ultimately be held to encompass situations where the agency 
has acted ex parte and without sufficient effort to inform itself .-■'"'•^ 

Even if one assumes that the administrative record may on occasion be 
supplemented by new evidence, it does not follow that this must be done 



252. Id. at 420. Upon remand in Overton Park, tlie district court conducted a 25-day 
trial in whicli it received voluminous evidence, much of it not contained in the original 
administrative record, bearing on the Secretary's conclusion that no alternative route was 
feasible. Citi^^ens to Preserve Overton Park, Inc. v. Volpe, 335 1"". Supp. 873 (W.D. Tenn. 
1973). The court indicated, however, that its decision would be based exclusively on the 
administrative record that was before the Secretary at the time he acted. Id. at 882. 

253. 411 U.S. 138 (1973). 

254. Id. at 142. 

255. United States v. Carlo Bianchi &• Co., 373 U.S. 709, 714-15 (1963). 

256. Src Londoner v. Denver, 210 U.S. 373 (1908). See also note 215 and accompany- 
ing text and note 43 supra. 

257. 401 U.S. at 415. 

258. 411 U.S. at 141-42. 

259. In a variety of situations, federal courts reviewing informal administrative 
action have admitted new evidence augmenting the administrative record. See, e.g.. 
Brown v. United States, 396 F.2d 989, 991-94 (Ct. CI. 1968) (Davis, J.). 



254 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

through a judicial trial. Alternatively, the reviewing court could, as in Hardin, 
remand to the agency for a tVesh determination in light of the additional in- 
formation brought to the court's attention. This approach has the advantage 
of enabling the agency to evaluate the new evidence for itself and would re- 
duce the risk of a judicial substitution of judgment. If frequently employed, 
however, the remand technique could force the agencies to adopt burdensome 
factfinding procedures that Congress did not see fit to impose and that 
could seriously impair the efficiency of the administrative process. We do not 
attempt to resolve these questions of appropriate procedure. Our purpose 
is merely to note that on certain procedural assumptions courts of appeals 
will often be able to perform the reviewing function effectively despite deficien- 
cies in the record. 

Our analysis \ields no easy generalizations concerning the fre(|uency with 
which a trial in the district court may be necessary. Until we know much more 
than we do. it would be premature to recommend wholesale, or even retail, 
departures from the existing statutory preference for district court review. But 
just as we do not say that all informal rulemaking should be reviewed in 
appellate courts, neither do we say that all informal adjudication should be 
reviewed in district courts. Further study may reveal categories of informal 
action in which the need for judicial trial, and the added burden upon the 
courts of appeals, are sufficiently small to warrant a statutory assignment 
of jurisdiction to the appellate courts. 

One class of informal action that immediately comes to mind as a cate- 
gory, or source of categories, for court of appeals review is the occasional in- 
formal orders of agencies that mainly adjudicate formally and have statutory 
review provisions placing their "orders" in the courts of appeals. Informal 
action by such an agency is often ancillary to a pending or prospective formal 
proceeding, and district court review, aside from its other inefficiencies, could 
have the added disadvantage of dividing a single proceeding between two 
courts. ^^"^ Not all informal action by formal adjudicatory agencies has this 
ancillary character — for example, the order complained of in Medical Com- 
mittee may have been altogether remote from the area of formal agency ad- 
judication. Furthermore, even when an informal order does fall within the 
general subject matter arena in which the agency formally adjudicates, it may 
be unrelated to any ongoing or imminent formal proceeding. As we have 
said,^^^ the mere fact that the district court, in reviewing an informal order, 
may have to decide a legal issue that would ordinarily come to the court of 
appeals review of a formal order does not seem a particularly troublesome 
form of bifurcation, since the district court's decision can in any event be 



260. See L. Jaffe, supra note 4, at 422. 

261. See notes 223-27 and accompanying text supra. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 255 

appealed. These considerations suj^gest as one possible statutory approach, 
that the standard court of appeals review provisions be construed or revised 
to cover informal orders ancillary to a i)ending or imminent formal proceed- 
ing^. Alternatively, the statutory "orders" reviewable in the appellate courts 
might, contrary to Metropolitan Edison, be defined to include informal as 
well as formal orders. The latter option seems preferable, not only because 
it avoids the jurisdictional ambiguities that lurk in the notion of ancillariness, 
but also because it makes good sense for informal orders to be reviewed by 
ap])ellate judges who presumably have acquired a subject matter expertise in 
the regulatory area in question. 

For most agencies, the class of orders that would come directly to the 
appellate courts under this approach are not numerous and typically involve 
important enough interests to be appealed in any event. Those instances, prob- 
ably rare, in which the record is inadequate could be handled by reference to 
a master, to the agency itself, or, statute permitting, to a district court. There 
are, to be sure, some exceptions. The informal, highly discretionary orders of 
district directors of immigration in deportation-related matters falling outside 
the framework of the forma! deportation proceeding typically involve questions 
of specific fact affecting only the immediate parties and are rarely appealed. 
For this and other reasons we have already discussed, ^"^ we do not share the 
view of Professors Davis^*''^ and Jaffe-''"' that these orders should be added to 
the exclusive jurisdiction of the courts of appeals. 

Whatever its ultimate form, a category -by-category approach to the ques- 
tion of ai)propriate forum seems to us preferable to the ad hoc approach of 
the District of Columbia Circuit in Hardin and Medical Committee. Under the 
latter, jurisdiction would apparently depend on a determination in each case as 
to whether factual questions demanding additional evidence were raised. No 
doubt such a test would shorten the road to ultimate appellate resolution, 
but only at the cost of uncertainty and jurisdictional litigation ;2'"'^ no one 
suggests that a similar approach be adopted in civil actions generally, though 
to do so would avoid delay in appeal cases where the facts do not have to be 
tried. 

262. Sec notes 109-27 and accompanying text supra. 

263. K. Davis, supra note 43, § 23.03, at 798-99 (1970 Supp. ). 

264. I,. Jafke, supra note 4, at 422. 

265. The uncertainty problem arises only on the assumption that district court and 
api)ellate court jurisdiction are mutually exclusive, so tliat a district court would be 
forced to disclaim jurisdiction in cases not re(|uiring a trial and therefore amenable to 
immediate appellate review. Uncertainty and judicial conflict would disai)pear, on the 
other hand, if the district courts, loo, adopted the ijragmatic policy of accepting jurisdiction 
in all instances where rerouting the parties appears to serve no practical i)Urpose in the 
particular case. The result — a (Ic facto system of concurrent jurisdiction — would be con- 
trary to the congressional intent, however, that circuit court jurisdiction be exclusive with 
resjjcct to "orders" within its domain and might also provide fertile opportunities for 
foruni-shopi)ing. 



256 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 
II. Specialized Courts and Exclusive Venue 

In France and other continental countries, administrative actions are 
reviewed by separate tribunals or courts.-"^ In the British Commonwealth, 
the idea of separate administrative courts or divisions is spreading.^"' In this 
country Congress has on isolated occasions created narrow specialized courts 
to review specific kinds of administrative action and has localized review of 
other administrative actions in a single court of appeals. 

The Court of Customs and Patent Appeals, as it is now known, was 
created in 1909 to hear challenges to tarifif determinations;^"* in 1929 it was 
given nonexclusive jurisdiction to review Patent Office determinations on 
patent applications and between competing applicants in interference proceed- 
ings.-"^ The Commerce Court, abolished three years after its creation in 1910, 
was given exclusive jurisdiction to review ICC railroad orders. '''" Congress 
vested exclusive jurisdiction to determine the validity of price regulations 
during the Second World War in the Emergency Court of Appeals, ^^^ and 
made a somewhat comparable provision for substantial constitutional questions 
under the 1970 price control legislation. ^"^ The Court of Claims has jurisdic- 
tion, exclusive in cases involving over $10,000, of contract and certain other 
claims against the United States.-"^ The Tax Court has nonexclusive juris- 
diction to determine challenges to tax assessments. ^^^ The Court of Military 
Appeals has review power, exclusive except for limited collateral attack over 

266. Tlie French Conseil d'Etat and the inferior Tribunaux Administratifs have ex- 
clusive jurisdiction over "acts of the administration"; other matters are litigated in the 
ordinary civil courts. Similar systems are found, for example, in Belgium, Italy, and West 
Germany. See gcnerallx L.N. Brown & J. Garner, French Administrative Law (2d 
ed. 1973). 

267. New Zealand created an Administrative Division within its Supreme (trial) 
court in the Judicature Amendment Act, N.A. Stats. 1968, No. 18. Sec also (N.Z.) 
Pl'blic and .Administrative Law Reform Comm., 5th and 6th Reports (1972, 1973). 
A committee appointed by the .'\ustralian Attorney General has recommended the cre- 
ation of a single administrative tribunal to review administrative decisions closely and a 
federal administrative court to exercise over it a more limited supervisory power. Com.mox- 
WEAI.TH .'\d.ministrative Rkview COMMITTEE, REPORT, .'\ustr. Pari. Paper No. 144 (1971). 
Rejected by the 1-Vanks Committee in Great Britain in 1957, Co.mmittee on Tribcxai.s 
and E.vqliries. Report, Cmd. No. 218, at 25-29 (1957), the idea of an administrative 
court or division is under restudy there. See id. 4059 (1969). In Canada, administrative 
review responsibilities, i)reviously scattered among provincial courts, were recently con- 
solidated in a single two-tier Federal Court with relatively few other significant duties. 
Federal Court Act 1970, 19 Eliz. 2 c. 1 (Can.). 

268. Act of Aug. 5, 1909, ch. 36, § 29, 36 Stat. 105. Initial reviewing power is now 
vested in the Customs Court, with a further right of appeal to the Court of Customs and 
Patent Appeals. See 28 U.S.C. §§ 1582, 1541 (1970). 

269. Act of March 2, 1929, ch. 488. 45 Stat. 1475. Sec 28 U.S.C. § 1542 (1970). 

270. Act of June 18, 1910, 36 Stat. 539, repealed by Act of Oct. 22, 1913, 38 Stat. 
208, 219. 

271. Act of Jan. 30, 1942, ch. 26, § 204, 56 Stat. 31. 

272. Economic Stabilization .\ct of 1970, as amended. §§ 211(b), (c). 12 U.S.C. A. 
§ 1904 note (Supp. Ill, 1973), as amended. Act of .A.ug. 24, 1974, Pub. L. No. 93-387, 
§§ 211(b), (c), 88 Stat. 750 (noted in 12 U.S.C.A. (Supp. 1974) ). 

273. 28 U.S.C. § 1491 (1970); see also id. § 1346(a)(2). 

274. 26 U.S.C. § 6213(a) (1970); see also statutes cited in note 273 supra. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 257 

court-martial convictions. ^^^ Exclusive jurisdiction over FCC license denials 
and over EPA regulations setting air-quality standards or new source per- 
formance standards (among other examples) is in the Court of Appeals for 
the District of Columbia Circuit. -^^ 

A. Advantages 

Examination of the history of specialized courts suggests three principal 
advantages over the prevailing American practice of review in the ordinary 
courts. It can produce judges more familiar with administrative issues in 
general and with individual administrative programs in particular, thus im- 
liroving the quality of decision. By minimizing actual and potential intercourt 
conflicts, it can reduce or eliminate disuniformity and uncertainty in the law 
administered by the several agencies and the attendant forum shopping. And it 
can relieve the burden on the ordinary courts, thus improving the conditions 
for decisionmaking in both administrative and nonadministrative cases. These 
advantages would not be without corresponding costs, as we shall see below. 
First, however, we shall examine the three hypothesized advantages. 

1. Relief for the Regular Courts. Relieving the caseload of the regular 
courts was apparently one explicit reason for tlie creation of the Court of 
Customs Appeals in 1909. The Second Circuit was "swamped" with a multi- 
tude of challenges to tariff determinations, causing delay in the resolution of 
tariff cases and "a serious obstruction to the disposition of . . . traditional 
litigation."-'" Later the same court was given patent jurisdiction in order to 
relieve the burden on the D.C. Circuit.-"^ 

It is now generally accepted that the regular federal courts, and especially 
the courts of ajjpeals, are critically overloaded.-''' To solve this problem by 
adding judges or circuits would, it is said, merely create new j)roblems. Al- 
read_\- the danger of intracircuit conflicts, the unwieldiness of enlarged en banc 
proceedings, and the lack of collegiality characteristic of existing courts of 13 
or 15 judges have led to recommendations for doubling the number of circuits. 
Yet there are dangers in the multiplication of circuits too.^**" 

The seriousness of the overload problem is largely beyond the scope of 
the present paper, but we add a caveat. It is fashionable to assume that recent 
upward trends in docket entries will continue, but predictions ought to be 
based upon more sophisticated subject-by-subject analysis.^^* As an example, 

275. 10 U.S.C. § 867 (1970). For tlie confusing scope of habeas corpus sec D. Cukrie, 
siifira note 6, at 164-211. 

276. 47 U.S.C. § 402(b) (1970); 42 U.S.C. § 1857h-5(b) (Supp. Ill, 1973). 

277. !•■. Franki-irtkr & J. Landis, Thk Business of the Supreme Court 149-.-)1 
(1928). 

278. Nathanson, The Administrative Court Proposal, in 2 Administrative Confer- 

E.NCE OF THE UnITED StaTES, RECOMMENDATIONS AND REPORTS 198, 211 (1970-72). 

279. Scr, c.(/., H. Friendly, supra note 10. 

280. Sec note 86 supra. 

281. Sec Casper & Posner, The Supreme Court's Caseload, 3 J. Legal Studies 339 
(1974). 



258 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

one must take care in basing projections upon the fact that direct appeals to 
the Ninth Circuit from EPA determinations rose suddenly to the staggering 
sum of 219 in the first half of fiscal 1974. '^^ The EPA has been going through 
a crash period of adopting regulations and approving implementation plans 
under a brand-new statutory scheme with tight rulemaking deadlines ; and 
review of its actions must be sought within 30 days. Such challenges can be 
expected to trail ofif almost as suddenly as they appeared. 

In any event, to the extent that present or projected caseloads impair 
or threaten to impair the quality of adjudication, any significant relief must 
be regarded as a substantial gain. Creation of a separate court or courts to 
handle administrative cases would directly further this objective, essentially 
by permitting the appointment of more judges without bloating the circuit 
courts or multiplying the circuits. A 10 percent reduction in cases, for example, 
would be tantamount to appointing 10 new circuit judges. ^^^ 

Care must be taken, however, to avoid overburdening a new court of 
administrative appeals. If all administrative cases were transferred to such a 
court, its docket would immediately approach that of our busiest circuit — the 
beleaguered Fifth (3,294 cases in fiscal 1974) — in which 15 judges have had 
to cut corners in order to keep abreast. One way to avoid this would be to 
give a new court jurisdiction over only as many categories of cases as it could 
handle with a manageable complement of, say, nine judges. Such a scheme 
would require monitoring of workloads and continuing jurisdictional adjust- 
ments, creating both an administrative burden and the danger of sudden 
changes in the law as a class of cases is shunted into or out of the new court's 
jurisdiction. It might therefore be preferable, from this point of view, to create 
more than one new court, though changing workloads could present similar 
problems. 

A principal difficulty with the overload argument is that it provides no 
justification for singling out administrative cases for transfer to specialized 
courts.^*'* The same objective could be achieved by separate courts for criminal 
or diversity cases or for those arising under the Federal Employers Liability 
Act (FELA). If such alternatives prove politically infeasible or undesirable in 

282. 1974 Semi-Annual A.O. Report, supra note 1, at 13. 

283. Sec text accomi)anying notes 38, 58 supra. This estimate assumes that adminis- 
trative cases are of average difficulty. The Third Circuit Time Study, supra note 37, 
rather surprisingly shows administrative cases to average a smaller investment of judge 
time than other cases, but Judge Leventha! has testified to a subjective conclusion that 
the opposite is true in spades in the D.C. Circuit. Sec Statement of Judqc Lcvcnthal, 
supra note 2, at 9. Obviously, administrative cases are highly variable in difficulty. 

284. A reason for singling out a class of administrative cases for separate treat- 
ment might exist if that class in itself imposed an extraordinary burden on the courts, as 
apparently was true of customs cases before 1909, sec notes 277-78 and accompanying text 
supra. There are fears that a recent surge in social security cases before the SSA may 
correspondingly glut the district courts in the near future. See notes 64-94 and accompany- 
ing text supra. But it is no more accurate to attribute the general problems of the circuit 
courts to administrative cases than to federal question cases not involving the federal 
government, which clearly outnumber them. See 1974 A.O. Report, supra note 1, table B7. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 259 

substance, then, of course, an administrative court or courts should be consid- 
ered to the extent that rehef is needed for the circuit courts. ^"^^ 

2. Certainty in the Lazv. Whenever concurrent jurisdiction over a class 
of controversies is vested in more than one tribunal, the danger arises that 
conflicting decisions, unless resolved by higher authority, will produce sub- 
stantive inequality, uncertainty, and, if liberal venue provisions are available, 
unseemly forum shopping. These considerations have figured prominently in 
the creation of specialized tribunals here and abroad. The establishment of the 
Court of Customs and Patent Appeals v^as preceded by "costly conflicts in 
decisions" under the tariff laws.^^® The Commerce Court was set up in re- 
sponse to a Presidential message that stressed, among other things, the "great 
uncertainty" resulting from "contrariety of decision" in various courts review- 
ing ICC decisions. ^^''^ The Clean Air Act gives the District of Columbia Circuit 
exclusive jurisdiction to review certain EPA regulations because they "are 
national in scope and require even consistent national application. "^^^ The 
same considerations, among others, have long prompted suggestions for special- 
ized courts of exclusive jurisdiction over tax and patent matters. ^^® And in 
the environmental field, EPA attorneys we interviewed acknowledged that a 
specialized court would relieve them of their present uncertainty, engendered 
by conflicting circuit court decisions, as to l)asic procedures they must follow 
in passing upon state implementation plans. 

From the standpoint of uniformity and certainty, it makes no difference 
whether one or more new courts are created, so long as subject matter lines 
do not overlap. But on some types of issues, overlap is almost inevitable. For 
example, different courts reviewing different agencies might reach divergent 
results as to common procedural or constitutional questions, or even as to 
such substantive matters as ratemaking, licensing, or antitrust policy. In any 
case, it is important for uniformity that the circuit courts be deprived of 
jurisdiction to decide the relevant questions regardless of the posture in which 
they arise, whether directly in agency review or by appeal from a district 
court. If a new court, for example, is to hear pre-enforcement challenges to 
regulations, it must also hear — eitlier originally, by certification, or on appeal 

285. We have not discussed the possibility that a special court or courts might 
relieve the burden of administrative cases on the district courts. Because the district 
courts do not to any significant degree function as collegial bodies, there is less ob- 
jection to relieving their caseloads by the appointment of additional judges. See H. 
Fkif.ndi.y, supra note 10, at 28-31. But there presumably must be .some limit, if only so 
that administrative tasks can be managed with some efficiency; and when that limit is 
approached the same considerations may be weighed as in connection with the circuit 
courts. 

286. See F. Frankfurter & J. Landis. supra note 277. 148-52. 

287. Message of President Taft, quoted in H.R. Rkp. No. 923, 61st Cong., 2d Sess. 
(1910), reprinted in 2 B. Schwartz, Tmf. Econ'omic: Regii.ation of Business and 
Industry 1031-32 (1973). 

288. S. Rep. No. 91-1196, 91st Cong., 2d Sess. 41 (1970). See also Mullan, supra 
note 223. 

289. See H. Friendly, supra note 10, at 153-71. 



260 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

from the district court — any challenges to validity that are permitted to be 
raised in defense of a civil or criminal enforcement proceeding. Certification 
from a regular trial court was provided for in connection with recent wage and 
price controls,^^** but it had the unfortunate effect of requiring litigation of the 
same case in two forums at the same time and does not seem highly desirable. 
Original enforcement jurisdiction would make it advisable to create a new 
trial court as well as an appellate one for more efficient ascertainment of the 
facts and, at least in criminal cases, would require the new court to sit in the 
vicinity of the offense. New judges would have to be appointed or to sit in 
every state. Since the transfer of jurisdiction over matters now heard in the 
district courts would further expand the jurisdiction of the new court, with 
consequent impact upon the caseload, appeal from the district courts to the 
new court would therefore seem far preferable. 

Again, however, the question arises whether it is appropriate to single out 
administrative cases if the elimination of intercircuit conflicts is the goal. A 
solution to the problem of disuniformity or uncertainty ought to focus upon 
those categories of cases in which that problem is or is expected to be especially 
serious. The likelihood of conflict depends, among other things, on the novelty 
and the complexity of the issues and the presence of issues on which social 
attitudes may influence decisions. The significance of conflict depends largely 
on the importance of the cases and the need for prompt, not merely eventual, 
resolution. There are old and relatively settled administrative statutes as well 
as new and unsettled ones, simple and trivial statutes as well as complex and 
crucial ones. Some affect strongly held social policies or require rapid resolu- 
tion and some do not. The same is true of nonadministrative cases. There is 
one difference: Dispersed review of the decisions of a single agency injects dis- 
uniformity into a system that, unlike criminal or accident cases, is presumably 
uniform at the trial level. Nevertheless, if greater certainty is our goal, it 
might be better to attack the problem wherever it is most acute rather than 
obliquely by singling out administrative cases. 

Moreover, before drastic alterations are made in the present jurisdictional 
system in the name of removing disuniformity, a serious effort should be 
made to determine the extent of the problem. In Canada, for example, a com- 
mentator observing that one reason for creation of a new federal court was the 
"obvious" danger of conflicting provincial decisions noted that it was "difficult 
to point to this having occurred in practice. "^^^ 

290. Economic Stabilization Act of 1970, 12 U.S.C.A. § 1904 (Supp. 1974), as 
avioidcd, Act of Aug. 24, 1974, Pub. L. No. 93-387, § 211, 88 Stat. 750 (noted in 12 
U.S.C.A. (Supp. 1974)). 

291. Mullan, supra note 223, at 23-24. See the doubts raised by Judge Friendly as to 
the lack of proof that, outside of the tax field, there are serious problems of unresolved 
conflicts or that the Supreme Court is overburdening itself to resolve conflicts. Friendly, 
Averting the Flood by Lessening the Floiv, 59 Cornell L. Rev. 634, 654-55 (1974); 
Testimony of Judge Henry Friendly Before Commission on Revision of the Federal 
Court Appellate System, 1974. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 261 

3. Better Understanding. Perhaps the dominant rationale for creation of 
speciahzed administrative courts has been the notion that review of highly 
technical administrative decisions requires a better grasp of the subject matter 
than can be expected from the generalist judge. Frankfurter and Landis ra- 
tionalized the Court of Customs Appeals on the ground that customs decisions 
confronted judges with problems "outside their usual province of experi- 
ence. "^^^ President Taft, in urging establishment of the Commerce Court, 
maintained that the issues on review of ICC decisions were "often technical," 
requiring "knowledge of the business. "^^^ Patent cases, Judge Friendly argues, 
present issues "beyond the ability of the usual judge to understand without 
the expenditure of an inordinate amount of educational effort . . . and, in 
many cases, even with it."^*'*'* British admirers of the French administrative 
courts headed by the Conseil d'Etat applaud the decision to entrust jurisdic- 
tion to experts who understand what they are reviewing rather than to ordinary 
judges who are often "strangers to the administrative process and unsympa- 
thetic to its needs" and whom the authors scornfully characterize as "the rea- 
sonable man on the Clapham omnibus. "^^^ 

It is obvious that concentrated experience in handling a particular cate- 
gory of cases facilitates understanding. A court whose sole function is to re- 
view FPC decisions would quickly become familiar with pipeline rate 
regulation even if its judges had no previous background in the subject. 
Further, if it were thought desirable, such judges could be chosen on the basis 
of their prior training and experience. The decider will invest more time and 
effort in learning the administrative field if he can expect the knowledge gained 
to prove useful later on. He can decide more speedily because he need not 
obtain a general education in the field case-by-case. The litigants, too, will 
find it more efficient to present cases before judges who need not be given 
a cram course in the background technology. And it goes without saying that 
the judge who knows what he is doing is less likely to make accidental errors 
through misunderstanding of the technology or of the body of the law being 
applied. The sensible client, one supposes, would prefer to hire a tax lawyer 
in a tax case, and a patent lawyer in a patent case ; the same philosophy should 

292. F. Frankfurter & J. Landis, supra note 277, at 148-52. 

293. See B. Schwartz, supra note 287, 1031-32. 

294. H. Frie.ndly, supra note 10, at 156-57. 

295. L.N. Brown & J. Garner, supra note 266, at 10, 156-61. See also the recom- 
mendation of the Law Commission (U.K.) that proposals for an administrative court or 
division be taken of? the shelf because of the view "held by some" that "a lack of exper- 
tise" sometimes renders ordinary judges "unable to get near enough to the administrative 
decision" to review it to best advantage, Cmnd. No. 4059, at 7 (1969) ; the statement of 
the sponsor of New Zealand's legislation providing for an administrative division that 
the judges of that division "will have a thorough knowledge of administrative law and 
of the background and the economic and social policies which the particular Acts con- 
cerned were designed to implement," D. Benjahei.d &■ H. Whitmoke, Principles of 
Australian Ad.ministrative Law 362 (4th ed. 1971); and the argument of the Aus- 
tralian Attorney General's committee for a federal administrative court because a 
"developing expertise" would be "very desirable." Report of Commonwealth Adminis- 
trative Review Committee, Austl. Parl. Paper No. 144, at 72-73 (1971). 



262 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

perhaps apply to judges. As Judge Friendly asks, why should "lack of under- 
standing" be "deemed a precious asset" P-^*^ 

The logical extension of this reasoning is to create separate courts for 
each narrow subject, administrative or otherwise — the narrower the better. 
To state this proposition, however, is to raise a red flag. Our system has 
largely been premised on the notion that such extreme specialization not only 
carries certain dangers, ^''^ but is unnecessary because increased specialization 
brings diminishing returns. Not every kind of case is so complicated that only 
one who does nothing else can understand it well enough to perform the rather 
limited function of judicial review. In any event, any effort to create more or 
less specialized tribunals for administrative or for any other cases ought to be 
based upon a detailed analysis of the kinds of cases in which there is a signifi- 
cant need. The challenge to automotive emission standards in International 
Harvester Co. Z'. Riickelshaiis,-^^ for example, presented a much more com- 
pelling argument for an expert tribunal than does the ordinary social security 
or workmen's compensation case. And once again, as illustrated by patent 
and antitrust litigation, the problem is not peculiar to administrative cases. 

In sum, the three principal alleged advantages of a separate administrative 
court point in somewhat different directions. The unburdening of the circuit 
courts is neutral as to which cases should be transferred and what sort of 
courts set up, so long as the regular courts are relieved of a significant burden 
and the new courts not overloaded. The elimination of disharmony argues for 
transfer of cases in the most disharmonious categories, and preferably to a 
single court. The creation of better understanding may call for relatively 
narrowly defined jurisdiction over cases involving a high degree of technical or 
other difficulty. 

B. Disadvantages 

1. Loss oj the Generalist Perspective. The more time one devotes to a 
particular subject, the less time one has to learn about others. Analogy has 
been one of the geniuses of the common law ; it surely has its place in adminis- 
trative review. To put blinders on judges and confine them to narrow compart- 
ments not only creates the risk of significant disuniformities but also enhances 
the danger that issues may be resolved on the basis of ignorance as to past 
experience in related fields. It seems likely, for example, that we have a 
better law of administrative procedure because the same courts review a num- 
ber of different agencies, and a better procedure in both courts and agencies be- 
cause of the comparisons perceived by courts that review them both. Excessive 

296. H. Friendly, supra note 10, at 157. 

297. See notes 299-324 and accompanying text infra. 

298. 478 F.2d 615 (D.C. Cir. 1973). 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 263 

compartmentalization can also frustrate substantive programs in which there is 
a need for coordination. ^^^ 

Another aspect of the generaHst perspective is the possible advantage of 
the outsider's unprejudiced vision. The cognoscenti have indispensable infor- 
mation on tecimical -matters, but they may also share preconceptions that the 
fresh mind unclouded with intimate knowledge would wish to reexamine. A 
specialized court made up of experts in the art of marine navigation would 
surely have been less likely than was the generalist Learned Hand to find 
the whole industry remiss in failing to adopt the radio. ^°° Similarly, the skep- 
tical outsider may have something of value to add in administrative cases just 
because he has not been steeped in the traditional wisdom with all its im- 
i:)erfections. 

2. The Luss of Diverse l^ie^vs and the Concentration of Power. That 
different courts decide the same issue in different ways is commonly lamented ; 
uniformity is a value much prized. As Judges Friendly and Oakes have pointed 
out, however, correct decision may often be promoted by filtering an issue 
through a variety of judges with a variety of points of view.'"'*^* 

What the first court decides wrongly may be better understood by the 
second or third. When the Supreme Court waits for additional lower court 
decisions before tackling a difficult new problem, it is often in anticipation that 
a few more heads may contribute to ultimate understanding of the issues. 
Collegial decision by the first court is a .safeguard against error, but it is 
hardly failsafe. Indeed, the dynamic of the decisionmaking process itself — 
deference to one's colleagues, the persuasive powers of a single member, the 
assignment of primary responsibility to the writing judge and the limitations 
of the parties presenting a particular case — ^dilutes somewhat the element of 
collegiality and increases the possibility that a fresh look by another body may 
afford additional insights. Moreover, as will be considered more closely be- 
low.'"'^ an entire court or its majority may come to embrace a particular point 
of view that may not be representative. Thus, while conflicting decisions 
resulting from multiple venue can be damaging if not promptly resolved, they 
have important uses in the short run. Perhaps it would be wiser to make 
certain tiiat conflicts can be resolved rather than to try to prevent them — if that 
can be done without undue burden to the system. 

I)i.si)ersion of jurisdiction among several courts not only assures that 



299. In Illinois, for example, one argument for consolidating pollution-control agencies 
was that it would be unfortunate to clear up an air-pollution problem only to create 
water pollution. Sec Ogilvie, Special Message on the Environment 2 (April 2i, 1970). 

300. The T.J. Hooper, 60 F.2d 7Z7 (2d Cir. 1932). 

301. H. Frik.^di.y, snl>ra note 10, at 186; Oakes. Dczrlof>weiits in Enviro>iiiirntal L(m\ 
in 3 Environ. L. Rkp. 50001, 50011 (1973) (opposing establishment of a specialized en- 
vironmental court: "[tjhere is a healthy cross-fertilization which occurs from having 
different courts rule on given environmental questions and then living with those decisions 
for a time"). 

302. Sec notes 306-12 and accompanying text infra. 



264 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

a number of judges may contribute their judgment to the sohition of difificult 
problems ; it also vastly reduces the potential of a single wrong decision to 
harm an administrative program or those subject to it. The more important 
the administrative program, the greater the dangers of giving sole power 
over it to a single court. Commenting on the death of the Commerce Court, 
Frankfurter and Landis observed that the courts are increasingly "arbiters 
of the economic and social life ... at times of the whole country," and that 
"the issues reach . . . beyond the experience and insight of a single court, 
however well equipped."-''"^ "Less than ever," they concluded, "is it likely 
that Congress will entrust these issues to five men, even though invested with 
the authority of bench and woolsack and subject to the corrective scrutiny of 
the Supreme Court. "'''°'* 

3. The Quality of the Judges. The doubt that seems to merit the most 
careful attention in connection with the creation of any tribunal of limited 
subject matter concerns the quality of the judges. If one could be confident 
that the judges of a new administrative court would be as able and disin- 
terested as the average judge of the circuit courts, one could view the pros- 
pect with more equanimity. But it is not at all clear they would be. 

One question is whether the nature of the job will be such as to attract 
persons of tiie same caliber as those who now sit on the federal bench. To 
some, perhaps, it is the very variety of the present circuit judgeship that 
makes it both prestigious and intellectually satisfying. To spend one's life 
deciding social security cases, for an extreme example, might seem less ex- 
citing than being a federal circuit judge and to make one less of a figure in the 
legal community.''*'^ If, on the other hand, all the interesting administrative 
business were taken from the circuit courts and given to a prestigious new 
tribunal, it would be the former whose seats might become less desirable, as 
their caseload would consist in larger proportion than today of such grist as 
automobile accidents and frivolous prisoner petitions. At worst both regular 
and special courts could be damaged, if a substantial body of interesting busi- 
ness were taken from the former and distributed in narrow categories among 
a number of the latter. Knowledgeable second-raters might replace more intel- 
ligent generalists, and it is to be doubted that such a development would make 
for sounder decisions. 

A second aspect of the problem of judge quality, prominently voiced 
during the debates on the creation and abolition of the ill-fated Commerce 
Court, is that judges may be not so much incompetent as biased.-''"" This 
problem in turn has two aspects. First, there is the danger that pressures 

303. F. Frankfurter & J. Landis, supra note 277, at 173-74. 

304. Id. at 174. 

305. Cj. Friendly, supra note 291, at 649 (the increasing criminal diet may make 
district judgeships less attractive). 

306. See F. Frankfurter & J. Landis. supra note 277, at 153-74. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 265 

may be brought to bear upon the appointment process. "We merely remind the 
Senate," said opponents of the Commerce Court, "of the tremendous influences 
that will inevitably surround the selection of such a tribunal. "•''•'" Professor 
Joseph Sax has explained persuasively why these pressures are greater the 
narrower the jurisdiction of the tribunal: 

lOrdinar)] judges . . . will spend only a tiny fraction of their time 
and energy dealing with environmental disputes. For this reason the 
process of judicial selection is not significantly affected by anyone's 
estimate of a given judge's attitudes about those issues. This is a 
most important fact, one which can hardly be api)lied to any institu- 
tion that deals regularly with environmental matters. A President or 
a Governor who is choosing an environmental council cannot avoid 
consideration of the attitude that important interest groups — whether 
the oil industry or conser\ation organizations — will adopt toward 
that choice. ^"^ 

The second danger is that bias may develop after service on a separate 
court. One possibility is that, as they come to know more and more about 
the subject — or from the outset if chosen because of prior knowledge — the 
judges may increasingly substitute their judgment for that of the agency in 
which Congress has vested discretion. In contrast, the uninitiated general 
judge may be inhibited by knowledge of his own inadequate information from 
interfering too much with agency discretion.^"-' How much interference is too 
much depends, of course, on the point of view. An agency is likely to favor 
considerable deference to its experts, and those it regulates may find or be- 
lieve that the inexpert judge lets the agency get away with murder. On the 
other hand, ])rivate attorneys we interviewed also favored review in the 
ordinary courts, but for the opposite reason: They feared that specialist judges 
might be too deferential to agencies with which they regularly deal and whose 
attorneys they have come to know personally. ^^° The architects of the Com- 
merce Court, cognizant of these dangers, provided for assignment of regular 
circuit judges on a revolving basis to prevent "the possibility of the court 
becoming ])acked with life members, dealing with a special subject, where their 

307. Id. at 157. 

308. J. Sax, Dkfknding the Environment: A Strategy for Citizen Action 109 
(1970). 

309. The comnient.s of a number of federal agencies reflect a belief that an en- 
vironmental court could become a "super-agency" wliere tlie judges would not 
hesitate to substitute tlieir views for those of the administrator .... 

President, .Acting Through the Attorney General, Report on the Feasibility ok 
Establishing an Environmental Court System VI-24 (1973) [hereinafter cited as 
Report of the President]. See also Hines &■ Nathanson, Preliminary Analysis nf 
Em-ironmcntal Court Proposal Sugc/ested in the Federal Water Pollution Control Act 
Amendments of 1972, in id. at C-13. 

310. See, e.g., argument of Senator Hardy against the Commerce Court, in F. 
Frankfurter &• J. Landis, supra note 277, at 161: "when you get your court set 
aside for the trial of one class of cases only, with represetitatives of the United States, 
far removed from the people, upon one side, and the representatives of the great rail- 
roads ... on the other, after a while your impartial judge begins to see things in a little 
different light from what he did before." 



266 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

opinions, or a majority of them, are fixed one way possibly leaning toward the 
interests of the railroads."-''" This concession, naturally, laid the legislation 
open to the criticism that it did not even provide expert judges. ^^^ 

Evaluating the danger that judges of a specialized court may be incom- 
petent or biased is largely an exercise in conjecture. The lessons of experi- 
ence are helpful but not conclusive. Not only is the success of specialized 
tribunals a mixed bag ; observers also differ in their assessment of success. 
No hint of personnel problems is found in recent British appraisals of the 
French Conseil d'Etat.''*^'' Judge Friendly reports a "lack of any serious 
criticism" of the Court of Claims or of the Court of Customs and Patent 
Appeals,'''^ and close observers have applauded the work of the wartime 
Emergency Court of Appeals.-''^ The Tax Court is thought by many prac- 
titioners to be pro-( jovernment.'^"' The Commerce Court was abolished largely 
because it was believed to be pro-railroad, but later commentators, pointing 
out that tlie railroads had fared even better with the circuit courts than with 
the Commerce Court, have cjuestioned that judgment. ^^^ Of the federal admin- 
istrative agencies themselves, one encounters criticism on grounds both of 
craftsmanship and of partisanship that one does not often hear about the 
circuit courts. •''''* As Professor Nathanson remarked in evaluating a recent 
proposal for a separate court of administrative review, "[t]he charge that 
regulatory commissions over the years tend to be dominated by the industries 
they regulate, whether justified or not, is too common to be ignored entirely 
in establishing new institutions. "•''^" 

An additional consideration suggested by the history of the Commerce 
Court is that a specialized court, whether or not actually partisan, is peculiarly 
susceptible to being thought partisan.'"'-" If a single court frustrates a popular 
administrative program, it is natural for those disappointed to blame judicial 
bias : the finger cannot so easily be pointed where responsibility is shared by 
eleven circuit courts. ^^* Confidence in the integrity and intelligence of deci- 
sion makers may make unfavorable decisions more acceptable. 

The spectrum of experience permits distinctions ; varying models of 
specialized tribunals pose personnel problems in different degrees. The status 

311. 2 B. Schwartz, supra note 287, at 1060. 

312. See id. at 1096. 

313. See L.N. Brown & J. Garner, supra note 266. 

314. See H. Friendly, supra note 10, at 154. 

315. See Hyman & Nathanson, Judicial Revieiv of Price Control: The Battle of the 
Meat Regulations. 42 III. L. Rev. 584, 630 (1947); Nathanson, supra note 278, at 198, 
212-13. 

316. See H. Friendly, supra note 10, at 166. 

317. See F. Frankfurter & J. Landis, supra note 277, at 164. 

318. For milder examples, see the materials collected in W. Geli.horn & C. Byse, 
Administrative Law: Cases and Comments 1-53 (6th ed. 1974) ; G. Robinson & E. 
Gellhorn, The Administrative Process 831-33 (1974). 

319. Nathanson, supra note 278, at 198, 214. 

320. See note 317 and accompanying text supra. 

321. See F. Frankfurter & J. Landis, supra note 277, at 164. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 267 

of the tribunal is surely relevant to the willingness of top people to serve, 
(ireater prestige and job security make it more attractive to be an article III 
judge tlian to be a board member, and tenure during good behavior is strong 
armor against improi)er influence.''-^ To equal or approach the personnel level 
of the courts of appeals, any new courts should enjoy article III status. 

But tenure alone may not be enough. The more narrowly jurisdiction is 
defined, the greater the danger of making the job repetitive and unattractive 
or of low prestige, the greater the pressure of special interests upon the ap- 
pointive process, and the greater the danger of excessive or insufficient defer- 
ence through overfamiliarity with personalities or programs. The Commerce 
Court was an especially unpropitious institution in this regard. It dealt with 
a single agency then regulating a single potent industry — in contrast to the 
more successful Court of Customs and Patent Appeals and Emergency Court 
of Appeals, both of which were concerned with the economy as a whole,^^^ 
to the Conseil d'Etat with its general administrative jurisdiction, and to the 
District of Columbia Circuit, which combines exclusive jurisdiction over cer- 
tain administrative functions with a healthy diet of general federal jurisdiction. 

The one redeeming feature of the Commerce Court was that the job was 
important enough to be attractive. But this very importance was another 
substantial factor in the court's downfall. The intense political controversy 
surrounding the issues on review assured maximum pressure on the appointive 
process and enhanced the likelihood that the court would be considered 
partisan. ^2* Courts of narrow specialized jurisdiction may have a better chance 
of surviving if they deal with relatively obscure, noncontroversial matters 
sucli as government contracts, customs and patents. On the other hand, if 
the job is quiet enough not to invite political intrusion, it may lack sufficient 
sex appeal to attract the best judges. Are we certain that the lack of outcry 
over the Court of Claims and the Court of Customs and Patent Appeals is 
attributable to good performance rather than to public indifference? Timing, 
of course, is important: The Emergency Court of Appeals and the Commerce 
Court had the good fortune to go largely out of business before the issues 
became stale and the glamor faded. Tales of administrative agencies proceed- 
ing from zeal to indolence over time furnish a useful admonition. 

4. Jurisdictional Litigation. The jurisdictional lines separating adminis- 
trative from general courts should be drawn as precisely as possible in order 
to minimize litigation over the proper forum. There is one type of such liti- 
gation that would be reduced by providing a single forum for each subject 
category: the present litigation over proper venue among courts of concurrent 
jurisdiction. But the determinants of proper venue under existing law have 



322. See The Feoeralist, Nos. 78, 79 (A. Hamilton). 

323. See Natlianson, supra note 278, at 214. 

324. See F. Frankfurter & J. Landis, supra note 277, at 162-64; H. Friendly, 
supra note 10, at 153-54; Nathanson, supra note 278, at 209-10, 214. 



268 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

been rather carefully picked out by years of decisions :^^^ a new crop of un- 
certainties might be created by a carelessly drawn statute creating new dis- 
tinctions based upon subject matter rather than geography. To give a court 
jurisdiction over "environmental" cases, for example, would invite wasteful 
jurisdictional litigation,^-'' much as has the French provision giving the Conseil 
d'Etat jurisdiction over matters "affecting the administration."^^' It would 
appear best to emulate existing statutes that define review jurisdiction simply 
in terms of the agency whose order is being reviewed, taking pains to clarify 
such ambiguities as whether or not "orders" includes regulations, ^^^ whether 
preliminary steps in the administrative process are to be reviewable, and 
what is to be done if issues within the experience of the new court arise in 
enforcement or other proceedings somewhere else.^^^ 

5. Litigation Convenience. In cases of small money value, centralized 
jurisdiction in a single court may deprive litigants of significant economies 
afforded by a district court or even by a circuit court forum. "■'*° This possibil- 
ity suggests either defining the jurisdiction of an administrative court so as to 
exclude categories rich in small cases or providing for the court to sit on 
circuit, as some current and past specialized courts have done.-^"*^ This latter 
expedient would be constitutionally necessary if the new court's jurisdiction 
extended to the trial of criminal cases. ^^- The travel burden might make the 
job less attractive. 

325. Sec generally D. Cukkie, supra note 6, at 657-62. Congress does not help wlien 
it provides for review in the "appropriate" circuit court, since tliere is no general venue 
statute for those courts. E.g., section 307(b), Clean Air Act, 42 U.S.C. § 1857h-5(b) ( 1 ) 
(1970). 

326. Sec Report of the President, supra note 309, at VII-1 (1973). 

327. On the one hand, some acts of the government, such as operation of a ferry, 
have been held within the jurisdiction of the regular civil courts because they were the 
sort of activity that could be conducted on the same terms by private enterprise. On the 
other, acts of private parties have been held to be within the jurisdiction of tiie admin- 
istrative courts when they concerned what was considered to be a public service. More- 
over, the civil courts may determine "flagrant irregularity" in governmental action : 
damage actions for government infringement of personal liberty; compensation for 
takings; certain tax cases; and accidents involving government employees. Finally, in a 
criminal (but not in a civil) case a regular court may pass upon a defense questioning 
the validity of an administrative action. Brown and Garner, on whose work this foot- 
note is based, point to one case in which after eleven years of jurisdictional litigation 
the parties started all over in the proper forum ; but they conclude that the seriousness 
of jurisdictional conflicts should not be exaggerated because "the rules which define the 
respective competences are now [after a hundred years] reasonably well settled." L.N. 
Brown & J. Gar.ner, supra note 266 at 80. This would obviously not be true of a new 
administrative court. 

328. Sec notes 140-60 and accompanying text supra. 

329. The possible complexities of such a provision are suggested by the details of 
Judge Friendly's proposal for a patent court, to which among other things cases would 
be removed from state or federal courts whenever the validity of a patent was called 
into question by way of defense. H. Friendly, supra note 10, at 160. 

330. For a detailed discussion of litigation convenience as between district court 
and circuit court, see notes 28-36 and accompanying text supra. 

331. The Tax Court, the Court of Claims and the Emergency Court of Appeals. Sec 
H. Friendly, supra note 10, at 169; Xathanson, supra note 278, at 212. 

332. U.S. Const, art. Ill, § 2. See Hines & Nathanson, supra note 309, at C-16. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 269 

C. Models 

If the problems of circuit court overload, disuniforniity and lack of exper- 
tise are found to be serious, and if the overload problem cannot be cured by 
surgery on such other portions of the case body as diversity and post-convic- 
tion cases, consideration will surely be given to alteration of the scheme for 
reviewing administrative decisions. A number of model review schemes could 
be concocted and tested against the considerations laid out in the preceding 
sections of this Article, including elimination of all direct circuit court review 
and the creation of a large number of highly specialized courts. We limit our- 
selves to a few of the more prominent models. 

1. Exclusive Jurisdiction in Designated Courts oj Appeals. If our sole ob- 
ject were to minimize disuniforniity and improve the quality of adjudication, 
rather than to relieve the circuit courts of part of their mounting caseload, we 
might well opt against the creation of a new court but in favor of giving the 
existing circuit courts exclusive jurisdiction to review action of designated 
agencies, as the District of Columbia Circuit now has for certain types of FCC 
and EPA actions. SEC cases, for example, might be parceled out to the 
Second Circuit ; FPC cases to the Fifth ; CAB cases to the Third, and so on. 
The judges would presumably acquire an expertise in the subject matter and 
yet still bring to bear the perspective of the generalist. Conflicts would be 
minimized or eliminated. The total appellate caseload would not be increased 
and, to the extent that the same issue need not be relitigated circuit after 
circuit, might be slightly reduced. Political pressures upon both the appoint- 
ment and decision processes would presumably be minimized.^^^ 

The fact is, however, we are very much interested in docket relief and 
therefore turn our attention to the desirability of increasing judicial capacity 
rather than merely redistributing the load. 

2. Exclusive Jurisdiction in Administrative Appeals Courts. A court of 
administrative appeals could take a variety of forms. Its jurisdiction could 
be limited to a single agency or homogeneous class of agencies, or could em- 
brace a wider and more heterogeneous range. Its members could be appointed 
from sitting appellate judges or from non-judges. The latter could be selected 
either for their preexisting expertise in one or more of the subject areas of 
adjudication or on the basis of more general qualifications similar to those 
ordinarily used in picking appellate judges. If sitting judges were to be desig- 
nated, their appointment to the new court could be permanent or for a fixed 
term, after which they would return to their home bench. The new court could 
be divided into permanent panels based on subject matter or shifting panels 
like the present courts of appeals. All panels could sit in Washington, or some 



333. For reservations as to the completeness of this protection, see notes 334-35 and 
accompanying text infra. 



270 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

could sit elsewhere, achieving a measure of regionalization. Conflicts among 
the panels would presumahly he resolved en hanc ; and panels specialized by 
subject matter could refer issues of general administrative law to the full 
court. Many other variations could be imagined. 

(a) Subject Matter Jurisdiction. The most important variable is subject 
matter jurisdiction. In general, we think it highly desirable that the jurisdic- 
tion of any court of administrative appeals he quite broadly drawn in order to 
reduce the pressures of special interests on appointment and decision, to avoid 
the loss of perspective that can come from overcompartmentalization, and to 
assure that the job is varied enough to be interesting. We concede that special 
circumstances or urgent need may in exceptional instances justify single- 
subject courts. Our best judges tell us that only technical experts can under- 
stand patent cases well enough to do them justice,'*'^* and a persuasive case has 
been made for a Court of Tax Appeals. ^^^ But the acceptability of a special 
court in such fields as patents and taxation may depend heavily on the lack 
of high political controversy or of a narrowly defined interest group con- 
stituency. Even if the need were comparable, we should be less sanguine 
as to the success of a court limited, for example, to labor or to environmental 
cases. 

The suggestion of an environmental court was raised by the 1974 amend- 
ments to the Water Pollution Control Act and opposed by the Attorney Gen- 
eral in a bulky 1974 report. •'^•'"'' Several of the report's objections can easily be 
met. Threshold litigation over what constitutes an "environmental" case 
would present less of a problem if jurisdiction were limited to cases arising 
under named statutes or under statutes administered by the EPA. Giving the 
new court appellate jurisdiction only would eliminate the need for circuit riding 
in criminal cases and reduce generally the inconvenience of a centralized forum. 
The objection that there are too few cases to keep such a court busy appears to 
have been cured by time,''^'^ though prediction of future workloads is hazard- 
ous.^^ But the hard problems of the specialized court, stressed by the Attorney 
General, remain: the possible loss of broad perspectives for resolving general 
issues, the lost benefit of diverse views, the danger of overreview by expert 
judges, the concentration of power — all exacerbated by the danger of partisan 
appointments in a politically sensitive field. "It would be difificult, if not im- 
possible," wrote Professors Hines and Nathanson, "to create a special court 
to handle environmental matters which w M not be regarded as partisan by 



3.14. Scr, e.g., H. Friendly, supra note 10, at 153-61, and authorities cited therein. 

335. Sec, c.(/.. id. at 161-71, and authorities cited tlierein. 

336. Report of the President, supra note 309. 

337. A computer printout furnislied by the Administrative Office to the Commission 
on Revision of the Federal Court Appellate System shows that direct appeals to the 
circuit courts from the EPA in fiscal 1974 numbered 454; that does not exhaust the 
environmental cases. 

338. See notes 281-82 and accompanying text supra. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 271 

a substantial segment of the parties affected by its decisions. "^•'''' In the absence 
of the strongest showing of need, we should be very reluctant to place so 
much power over such important matters in the hands of a single court not 
insulated from appointive pressures by substantial non-environmental business. 
Further, the Attorney General expressed serious reservations as to the 
need for an environmental court, reporting that the affected agencies had ex- 
pressed confidence in the ability of the ordinary courts to handle even the 
toughest environmental cases. The position of the EPA here is especially 
instructive: 

We believe that the courts have shown that their ability to cope with 
the environmental issues involved is adequate, and is certainly not in- 
ferior to their ability to cope with the technical issues involved in non- 
environmental cases. . . . 

The parties will both do their best to explain the issues to the 
court in layman's language. In our experience there are few issues 
that cannot he explained adequately in this way. . . . 

The kinds of environmental issues that typically arise do not 
directly involve obscure matters of scientific theory or technicjues. 
Instead, they are questions of eviflence, of the form "What do the 
facts show the effect of a given factor (concentration of a pollutant, 
use of a control method, use of a pesticide) to be on a variable (hu- 
man health, pollution emissions, the survival of certain species of 
wildlife) ?" Such questions are relatively easy compared with those 
that often arise in patent ca.ses concerning whether a given invention 
differs from a previous one to the extent necessarv to make it patent- 
able . . . .■•'''•» 

While the Deputy Assistant Attorney General for the Land and Natural Re- 
sources Division has more recently indicated a desire to reevaluate the report's 
conclusion in the light of further experience indicating considerable technical 
difficulty, ^^' we believe several decisions of the circuit courts under the Clean 
Air Act, technical as the issues are, eloquently substantiate the Attorney 
General's position that the .sacrifice of expertise is not so serious as to justify 
the risks of a narrow specialized environmental court. ''*^ 

The 1971 Ash Council report, agreeing that separate courts to review each 
federal agency would be undesirable,-''^''' proposed the establishment of a single 

339. Hines & Natlianson, supra note 309, at C-20. 

340. Report of tiik President, supra note 309, at B-5.S, B-56. 

341. See Address by Walter Kiechel, Jr. before ABA Comm. on P'nvironmental 
Law, April 27. 1974. 

342. Sec. c.i;., International Harvester Co. v. Ruckelshaus, 478 i'".2d 615 (D.C. Cir. 
1973); Portland Cement Ass'n v. Ruckelshaus. 486 F.2d 37.S (D.C. Cir. 1973), crrt. 
tfcnicd. sub now. Portland Cement Corp. v. Administrator, 417 U.S. 921 (1974) : Texas v. 
EPA, 499 F,2d 289 ( .Sth Cir. 1974). This as.sessment is made against the background 
of the experience of one of the authors as Chairman of a full-time state pollution control 
board for two and a half years. Sec also Hines & Natlianson, supra note 309, at C-13, 
C-14 (describing several district court opinions under NEPA as "monuments," along 
with "equally impressive" decisions in other technical fields as antitrust and railroad 
receiverships, to the capacity of the federal judicial system "to master a body of learning 
and experience far removed from the classical pathways of the law"). 

343. To so limit the court's scope would seriously diminish its attractiveness to 



272 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Administrative Court to review agency decisions in the fields of transportation, 
power, and securities now made by the ICC, CAB, Federal Maritime Commis- 
sion (FMC), FPC and SEC. It argued that a specialized court with a limited 
jurisdiction would yield better understanding of the issues and relief of the 
burdened circuit courts. ^^'* 

The Administrative Conference, echoing a report by Professor Nathanson, 
was critical. There were too few such cases to give the courts of appeals signifi- 
cant relief: only 176 in fiscal 1969, less than 3 percent of their caseload. More- 
over, the jurisdiction proposed was so narrow as to render the new court 
unable to make the anticipated "contributions to uniformity in administrative 
law" and as to create the risk that the court might "become or give the appear- 
ance of becoming identified with the agency or industry point of view."-'''*^ We 
agree. The optimum administrative court should enjoy the safeguards of a 
broader jurisdiction, and we are not convinced that the Ash Council proposal 
singles out those administrative decisions most deserving of review by a 
specialized court. 

(b) A Suggested Model. Jurisdiction of an administrative court should 
be determined with an eye upon the problems to be corrected. It should in- 
clude the most technically difficult, the most novel and uncertain, and the 
most time-consuming cases in order to maximize the reduction of poor under- 
standing, disuniformity and overburden. Absent detailed study of each cate- 
gory of cases, we can only make tentative suggestions. Attacks upon regula- 
tions under such new and technical statutes as those governing air and water 
pollution, noise, occupational health and consumer safety seem obvious candi- 
dates on all three scores. Individual cases as well as regulations from the 
Nuclear Regulatory Commission (NRC), the Federal Aeronautics Adminis- 
tration (FAA), the Food and Drug Administration (FDA), the FPC, the 
FMC, the FCC. the SEC and the ICC are likely to be both important and com- 
plicated, even though the governing statutes have been much interpreted. 
NLRB cases loom large in number but not, we think, in technical complex- 
jj.y 346 ^^^ though forum shopping has sometimes proved of concern, there is 

the most qualified candidates for judgeships, would encourage an overassociation 
with the agency being reviewed, and might lead to a usurpation of the agency's 
policy responsibilities. It would also preclude development of integrated adminis- 
trative procedures as well as uniform application of procedural advances. 
President's Council on Executive Organization, New Regulatory Framework: 
Report on Selected Independent Regulatory Agencies 54 (1971). 

344. Id. at 51-56. 

345. See Full Statement of Views of the Aiiininistrative Conference on the Report of 
Selected Independent Regulatory Agencies of the President's Advisory Council on Execu- 
tive Organization, in 2 Administrative Conference of the United States, Recom- 
mendations AND Reports 27, 30-31 (1971) ; Nathanson, supra note 278, at 198. 

346. The General Counsel of the NLRB reports that "cases from this agency do not 
involve complex scientific or technical questions": and that of 298 circuit court cases 
in fiscal 1974. 66 were decided without oral argument and 72 without opinion. Letter 
from Peter G. Nash, General Counsel to the NLRB, to Antonin Scalia, Chairman of 
the Administrative Conference, Oct. 25, 1974, at 2, 5. Judge Leventhal testified before 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 273 

substantial intercircuit uniformity today. •''■*'^ Trade Commission cases range 
in theory from enormous antitrust matters of considerable technical complex- 
ity to relatively simple matters of deceptive advertising. The former should be 
reviewed by the same courts reviewing other antitrust cases to avoid disuni- 
formity ; the latter seem to present no cause for a special court. Immigration, 
social security, longshoremen's act, employee dismissal'^'*'' and mining cases, 
we suspect, tend to be uncomplicated, the issues not novel, and the case for a 
local forum strong. Additional categories of cases can be analyzed in the same 
manner. 

Thus, as a preliminary sketch, one can visualize a separate article III 
appellate court, or perhaps two such courts, with jurisdiction to hear appeals 
from individual decisions of the KRC, FCC, FPC. ICC, CAB, FMC and SEC, 
and challenges to regulations adopted by these agencies, and by the FDA, 
the FAA and the EPA, and under the consumer-product safety and OSHA 
provisions. For the sake of consistent application of the law, the administra- 
tive court should also have appellate jurisdiction over district court cases — for 
example, enforcement actions — arising under the same statutes. To create 
such a court would eliminate intercircuit conflicts and uncertainties in these 
important fields; it would facilitate judicial understanding of these complex 
problems ; and it would remove a large and growing body of cases from the 
overburdened circuit courts. •^■*'' Jurisdiction would be broad enough that no 

the Commission on Revision of the Federal Court Appellate System on May 21, 1974 
that even contested NI.RB cases are often "routine" and of "no significant weight" since 
tliey frec|uently turn on "whether there is substantial evidence of a refusal to bargain, or 
discriminatory discharge." 

347. Sec note 98 and accompanying text supra. 

348. Our impression is generally supported by the view of the General Counsel of the 
Civil Service Commission that, "except for the areas of pay and classification, which 
sometimes i)rove troublesome to the courts, most of the Commission's cases do not 
involve highly technical or complicated questions." Letter of Anthony I.. Mondello to 
.Antonin Scalia, Chairman of the Administrative Conference, Oct. 21, 1974, at 2. 

349. Determining the caseload such jurisdiction would impose is somewhat difficult 
not only because of shifting litigation i)atterns but also because of the way the statistics 
are reported. Direct appeals from the listed agencies to the circuit courts numbered 823 
in fiscal 1974 according to the 1974 A.O. Report, siif>ra note 1, table B3, and to the 
supplemental computer printout cited in note 337 supra: 

Direct Appeals from Selected Agencies to 
Courts of Appeals, 1974 

ARC (now NRC) 2 

CAB 37 

CPSC 

EPA 454 

FAA 2 

FCC 90 

FDA 15 

FMC 7 

FPC 166 

OSHA 35 

SEC 15 

Professor Nathanson, supra note 278. at 199 n.7, reports there were 96 ICC cases taken 
to three-judge district courts in fiscal 1969; the A.O. Rkports, supra note 1, do not list 
these separately. There were also ajjpeals from district court cases involving the above 
agencies. Most of the others are buried under the heading "other." The total caseload 



274 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

single industry would be likely to dominate, even over time, the selection of 
judges. Finally, the breadth and importance of the jurisdictional spectrum we 
have outlined is sufficient, we believe, to make the job highly attractive. 
Stripping the regular courts of these important cases does diminish their 
glamor but leaves them such challenging matters as constitutional attacks 
upon state action and the enforcement of civil rights laws. Such a court would 
meet many of the objections made by the Attorney General against an environ- 
mental court and by the Administrative Conference against the Ash Council 
proposal.^^" 

The possible objection that a jurisdiction embracing such a grab bag of 
diverse specialties would be incompatible with the stated goal of decision- 
making by experts brings us to the further question of how members of the 
new court should be selected. If oversight were confined to a single agency or 
homogeneous group of agencies, it might be feasible to draw members from 
non-judges with preexisting expertise in the subject area. Indeed, the sole 
convincing rationale for so narrow a jurisdictional grant would be to maximize 
the court's subject-matter expertise. This aim arguably would be best pro- 
moted by appointing persons with special knowledge of the technology and 
economics of the regulated industry, since the technical competence required 
to come to grips with the scientific issues presented in environmental or nu- 
clear-licensing cases is altogether different from that required, say, for intelli- 
gent evaluation of the economic regulation in such a field as transportation. 

Given even a narrowly defined jurisdiction, however, we would recom- 
mend against this method of appointment, since it would maximize the danger 
both of political pressure in the appointment process and of overintrusive su- 
pervision by the judiciary. Moreover, such appointments would minimize the 
likelihood of obtaining either the perspective of the generalist or two additional 
varieties of expertise that would be of value on a court of administrative re- 
view. One is the art of judicial review of administrative action ; it calls for 
an understanding of the administrative process, a feeling for the proper limits 
of the judicial role, a sophistication in the application of such standards as 
"substantial evidence," "arbitrary or capricious," and so on. It is the kind 

on the basis of the above figures might approximate 1000, about equal to that of the 
Seventh and Eighth Circuits. Nine judges can survive such caseloads only because they 
include easy cases that can be subjected to summary procedures that would seldom be 
available to a special court whose cases are selected precisely because they are the most 
difficult. Significant increases, moreover, may be expected in the near future in such 
categories as water pollution, noise, OSHA, and consumer product safety, where pro- 
grams are just getting under way; and a probable dropoff in litigation over air pollu- 
tion regulations should be partly offset by a significant gain in corresponding enforcement 
actions. To add NLRB cases would increase the load by 641 cases on the basis of 1974 
figures so it would approach in bare numbers that of the Second Circuit, or about half 
that of the Fifth. 

350. Compare Professor Nathanson's opposition to the Ash Report zvitli his con- 
cession that to "concentrate judicial review of all the federal regulatory agencies in a 
separate division of the federal courts of appeals" would be "fairly debatable." Nathanson, 
supra note 278, at 215-16. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 275 

of skill one would expect to be acquired by the judges of the District of 
Columbia Circuit by virtue of their heavy dose of administrative appeals. The 
final kind of expertise might be labeled "procedural" ; appellate judges who 
regularly hear a gamut of civil and criminal cases, especially the latter, become 
experts in the requirements of due process. ^^^ The narrow specialization which 
is calculated to maximize the subject-matter expertise is by no means the best 
prescription for the other two talents. 

As the jurisdiction of the court is broadened to include diverse agencies 
and subject matter, the desirability and even the feasibility of staffing it with 
preexisting subject-matter expertise become increasingly doubtful. If the spe- 
cial court were intended to be an "expert" body in the sense that its members 
come to the bench already qualified as experts by their pre-judicial experience, 
no member could be considered an expert in more than a small part of the 
subject areas that comprised the court's business. For example, if one member 
of the court were chosen for his experience in the field of natural gas regula- 
tion, another for his backgroimd in environmental matters, still another for 
his knowledge of securities law, there would be a great danger either that the 
specialists in a particular sector of the court's jurisdiction would come to 
dominate the panel in cases arising in that area or that the court would 
eventually decompose into sub-specializing panels in order to bring maximum 
subject matter expertise to bear upon each case. Furthermore, since fewer 
judges would be chosen from each field of expertise, constituent groups might 
have an even stronger incentive to press for the appointment of a sympathetic 
member than if the jurisdiction of the court were narrower. 

If, on the other hand, members of a special court with broad jurisdiction 
were chosen from non-experts and expected to acquire their knowledge simply 
through frequent and continuing on-the-bench exposure to the several areas 
of litigation, the argument would be a different one: Because of the diversity 
of cases coming before them, the judges could not be truly expert in any. 
Rut to insist upon judges who are truly technical experts may be to lose sight 
of the limited function of judicial review. More likely, all that is needed is 
the sort of familiarity that the District of Columbia Circuit has acquired in a 
number of administrative fields by virtue of its concentrated though varied 
administrative diet. As Judge Leventhal has argued, "judges are generally 
'quick -Studies' " ; reviewing courts "do not need enougli knowledge or under- 
standing to determine what the government should do" but require, only 
enough background understanding for what is "primarily a general appraisal 



351. This sensitivity might be thought merely another name for what we have 
been calling "the perspective of the generalist," but the two are not identical. The latter 
refers to the breadth of background and sympathy a judge brings to liis task by virtue of 
his experience of life; the former is the more specific competence he acquires through 
practice in adjudicating claims of procedural unfairness. 



276 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

of fairness, and in that they are expert. "''^^ Tlius, we do not think the lack of 
narrow expertise is a serious objection to a court with broad administrative 
review jurisdiction. 

For similar reasons, we believe it would be highly desirable — especially 
if the jurisdiction of the court were to embrace a broad range of agencies — for 
its members to be appointed from sitting circuit court judges. A sitting judge 
transferred to the court of administrative appeals would hopefully bring to 
his new assignment a breadth of perspective not ordinarily to be found in the 
narrow specialist, along with some degree of experience in evaluating admin- 
istrative action and in enforcing procedural fairness. And constituency pressure 
for the appointment of benign judges, though not eliminated altogether, would 
be abated somewhat by virtue of the limited range of candidates eligible for 
appointment, and the frequent absence of any well-defined differences in atti- 
tude among the candidates. 

If the members of the special court were selected from sitting appellate 
judges, the question would arise whether appointment was to be permanent 
or temporary and, if the latter, w'hether for a fixed term or at the appointee's 
pleasure, the judge returning in either case to the circuit court from which 
he came. Three considerations favor temporary appointment. First, there is 
the possibility that too few judges of the highest caliber would be attracted 
to a lifetime position on a court they might view as less prestigious and less 
interesting than the circuit courts. Second, there is the contrary possibility 
that curtailing their jurisdiction would make the circuit courts less attractive 
and create a strong demand among the judges for a tour of duty on the special 
court. Third, it may be desirable to supply the new court, through regular 
turnover, with a continuous infusion of new blood and fresh attitudes, to avoid 
staleness, rigidity and loss of interest. Stronger considerations, however, 
argue for permanence of appointment. First, and most important, it would 
defeat a cardinal purpose of the special court if its members were relieved of 
their duty just as they began to acquire a true mastery of the job. Second, a 
revolving-door court would be less likely to achieve high prestige and drawing 
power than one with membership as stable as that of other appellate courts. 
Finally, a double-edged consideration: An increase in the frequency of ap- 
pointment would multiply the opportunities for political influence but at the 
same time would tend to make the special court more broadly representative 
of the appellate bench as a whole, thus neutralizing any bias present in the 
initial selection process. On balance, we believe the weightier argument favors 
permanence, but we do not regard the choice as critical. 

D. Conclusion 

Creation of even the most acceptable court of administrative appeals 
would be a radical departure from our established system of judicial review. 
352. Statement of Judge Leventhal, supra note 2, at 11-12. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 277 

We should be hesitant to incur the risks that always attend new institutions 
in the absence of a strong showing that the present system has serious flaws 
that cannot be cured b)- less drastic nieasures.^^^ The judges themselves say 
the courts of appeals are heavily overloaded, and we have no basis for dis- 
agreement. It might be wiser, however, to deal with this problem by limiting 
jurisdiction over diversity cases, which are peripheral to the function of 
federal courts; by providing for increased finality in criminal cases, because 
of the infinitesimal returns produced by the enormous investment of judicial 
time in sifting prisoner petitions,-''^''* or even by the creation of additional cir- 
cuits.^^^ In any event, the overload problem is no reason for singling out 
administrative cases. The same relief would be afforded by the creation of 
specialized courts for diversity or criminal cases. As for intercircuit conflicts, 
forum shopping and uncertainty, we think it must first be shown that these 
problems are serious enough to warrant major surgery, and that they are 
especially acute in the administrative area, before a jurisdictional change de- 
signed specifically to meet them would be appropriate. We think it food for 
thought that, in all the agencies we contacted, only one intercircuit conflict 
was put forward as having seriously impeded agency operations.'^'''"' Finally, 
while an administrative court would no doubt be marginally more competent 
in deciding difficult administrative cases than the regular circuit courts, the 
latter have performed impressively in environinental cases, which are among 
the most difficult ; and the affected agencies generally have expressed satis- 
faction with the ability of the appellate courts to understand and cope with 

353. Perhaps the path of wisdom lies in the view that by and large our system 
of review by general constitutional courts has worked reasonably well, and tliat 
it is only in si)ecific areas where one can anticipate a problem or shortfall in 
performance, that changes should be charted. 

Id. at 14. 

354. Sec H. Friendly, supra note 10, at 139-52; Friendly, Is Innocence Irrelevant? 
Collateral Attack on State Criminal Judgments, 38 U. Chi. L. Rev. 142 (1970). 

355. See note 86 supra. 

356. For the one serious EPA conflict, see text following note 289 supra. The AEC, 
nov\' tlie NRC, reports no intercircuit conflicts, and no adverse effects from potential 
conflicts, during the past five years; tlie FAA, Consumer Product Safety Commission, 
SEC, Comptroller Genera! and Federal Reserve report they iiave had no problems. The 
CAB reports a single conflict in five years on which certiorari was not sought because 
the Solicitor General thought the issue "sui generis" and the sums at stake insuflicient. 
The NLRB has suffered nine conflicts since July, 1972. In three the Board chose not to 
seek certiorari, awaiting "better vehicles" to present the issues; in five of tlie remaining 
six the Supreme Court resolved the conflict. 

As for the related forum-shopping issue, none of the agencies resi)onding to our 
incjuiry reported a significant problem. The NLRB, as to whose decisions such forum 
shopping has been suspected in the past, reports that the problem of duplicate review is 
solved by transfer under 28 U.S.C. § 2112 (1970) (giving the agency power to file the 
record and thus to determine which of several possible ai)peals courts will hear a i)ending 
appeal), and that forum shopi)ing has no "real impact" upon operations. See letters to 
Antonin Scalia, Chairman of Administrative Conference, from (Jeneral Counsel Offices 
of the AEC, Oct. 7, 1974; Dep't of Transportation, Oct. 31, 1974; Consumer Products 
Safety Commission (CPSC), Nov. 18, 1974; SEC, Oct. 30, 1974; Dep't of Treasury, Oct. 
8, 1974; Federal Reserve Board, Oct. 10, 1974; CAB, Oct. 18, 1974; and NLRB, Oct. 25, 
1974. See also Hines & Nathanson, supra note 309, at C-16, C-17 (the performance of 
the federal courts in environmental cases generally "reveals little grounds for complaint 
about inconsistency"). 



278 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

technical issues. ^^^ In sum, we are doubtful that there is any compelling reason 
to single out administrative cases for review in a separate court. The prob- 
lems of overload and uncertainty, if found to require action, might be better 
approached directly. 

This conclusion is buttressed by the stubborn drawbacks of even a general 
administrative court — the inherent loss of diversity of view, jurisdictional un- 
certainties that may survive the best efforts at drafting, and the need for con- 
tinual readjustment of jurisdiction to accommodate shifts in caseload or in 
novelty. Not least, there is the danger long ago perceived by Frankfurter and 
Landis, of concentrating great power in a small number of individuals. If 
this proved unacceptable in the narrow field of railroad regulation, it is even 
more questionable where the very heart of our national regulatory programs 
is at stake. There is security in tiie dispersion of power, and that ought not 
be lightly discarded. 



357. In addition to the communications included in the Report of the President, 
.supra note 309. srr the responses of the AEG, Comptroller General, Consumer Product 
Safety Commission. FA.A. Federal Reserve Board, ICC, XHTSA (highway safety) and 
SEC to our questionnaire. Letters to Antonin Scalia, Chairman of the .A-dministrative 
Conference, from Office of General Counsel of AEC, Oct. 7, 1974; CPSC. Xov. 18. 1974; 
Dep't of Treasury, Oct. 21, 1974; Dep't of Transportation, Oct. 30, 1974; Federal Reserve 
Board, Oct. 10. 1974; ICC, Xov. 5. 1974; and SEC. Oct. 10. 1974. Of the agencies we 
questioned, only the General Services Administration (GSA) and the military have 
expressed any dissatisfaction on this score. The former's concern was with government 
|)rocurcment cases: "Many judges . . . experience difficulty in distinguishing between 
the general concejits and the specialized ones." Letter to Antonin Scalia, Chairman of 
.\dministrative Conference, from GS.'X, Dec. 24, 1974. The .A.rmy argues that "most 
district judges are not qualified to decide" the "complex technical and scientific ques- 
tions" in patent and certain contract cases. The Navy, principally concerned with 
constitutional problems such as reservists' wigs and counsel at summary courts-martial, 
says that "while the courts have displayed sufficient understanding to deal with purely 
.scientific questions . . . , they have been singularly inept in understanding the com- 
plexity of the day-to-day problems of the military society . . [and] repeatedly interfere 
in military matters wherein they have little or no competence." Letter to Antonin Scalia, 
Chairman of .Administrative Conference, from Dep't of Defense, Dec. 6, 1974. While the 
necessity of living with review in the regular courts for at least the short term might 
dampen any public expressions of discontent, we think the agencies' responses not without 
significance. 

The creation of an administrative court, however, would facilitate the provision of 
technical staff help, if that be thought desirable, to the judges. To equip every circuit 
court, not to mention every district court, with experts in the entire gamut of relevant 
knowledge would be prohibitive and highly inefficient. A pool of such talent to be 
assigned to various courts as needed would preclude the establishment of a confidential 
staff relationship between judge and expert such as might develop on a single adminis- 
trative court. Lawyers for the ])arties are likely to oppose such technical assistance in 
fear that the unseen expert, whose views cannot be challenged because tiiey are kept 
confidential, will actually make the decision. .An alternative might be a technically (pialified 
master who would write a report open to i)arty criticism, or a court-employed expert 
who would give his views in open court. Either of these would deprive the judges of 
the significant values of confidential advice. 

The Illinois Pollution Control Board was equipped with technically qualified assis- 
tants — sanitary engineers — who worked under the close supervision of the Chairman. They 
workc<l not on whole cases but on selected technical issues referred to them by the 
Chairman and served very largely as translators of technical language. They also raised 
(|uestions for the Board to put to the parties. Board control of matters of policy was of 
course aided by the fact that the Board heard only jiollution cases. But on balance we 
believe that a small staff of technical advisors could function effectively in connection 
with a broadly defined court of administrative appeals and could be kept by strong- 
minded judges from unduly influencing decisions. In any event, we think the outlook for 
such advisors distinctly better on such a court than in the circuit courts. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 279 

iMiially, there remains the possibility, or legitimate apprehension, of im- 
])roper influence on the appointive process. We have argued that the broad 
jurisdiction envisioned for such a court would reduce the vulnerability of the 
court to political influence on the appointment process, but we must sound 
a note of caution. A broad and diverse jurisdiction is no guarantee that reg- 
ulated firms and industries or other interested groups will not press for the 
appointment of friendly judges. It is not the narrowness of the court's juris- 
diction, but its exclusivity, that supplies the motive for such pressure. A court 
that heard all CAB business, even if it heard much else besides, would be well 
worth the airlines' capturing. One might reasonably hope that, with many 
influences being brought to bear, none would be effective; and that no single 
interest group could persuasively demand a "seat" on the court when so many 
others had as good a claim. But one should not bank too heavily on this 
hope. Cutting across the various fields of regulation, there is, after all, a 
fairly constant opposition between what might be called the "consumer" in- 
terest and the "industrial" or "utility" interest. A potential appointee who.se 
background commended him to the natural gas or electric power industry is 
apt to I)e acceptable to railroad, airline and shipping interests as well and, by 
the same token, unacceptable to consumer and environmentalist groups in 
general. No doubt this greatly oversimplifies the matter. There are many areas 
of conflict between industries (between competing transportation modes or 
energy sources, between carriers and shippers, between whole.sale and retail 
gas suppliers, and so on ) and of potential conflict between consumers and 
environmentalists. When these (|ualifications have had their full due, however, 
breadth of jurisdiction would still be at best an unreliable safeguard against 
interest-group pressure.'*"'** In short, we do not favor the establishment of an 
administrative court. 

III. Froi'osals for a National Court ok Appeals 

An impressive array of prominent judges, attorneys and scholars have 
recently endorsed propo.sals for a National Division of the Court of Ai)i)eals 
intended to resolve intercircuit conflicts, settle important questions of federal 
law, and relieve the dockets of the Supreme Court and of the circuit courts.''"*" 



358. There is a related danger. Tradition lia.s come to dictate the geographical dis- 
tribution of judgeships within existing circuits and has been said to have affected both 
geograpliical and etiinic conijjosition of the Supreme Court from time to time. Division 
of jurisdiction on subject matter lines coulfl encourage a corresponding tradition of 
allocating seats on an acJTninistrative court along lines either of sjjccial interest or of 
subject matter comi)etence. We should view any such development as highly alarming: 
Courts are not the i)lace for voting according to interest-group representation, both 
because too few interests can be represented and because the theory of judicial (as 
opposed to legislative) review is that more neutral values shall i)revail. 

3.S9. Sec, e.fj., ABA Rf.i'oht ok tiik Spkciai. Committkk on Coordination or Ji nrciAi, 
Fmpkovkmknt.s (l-'eb., 1974); Carrington, supra note 31; firiswold, The Supreiiie Court's 
Caseload: CitU Rights and Other Frohleiiis. 1973 U. Ii.i.. L.I"". 6I.S; Rosenberg, Planned 
h'lcxihility to Meet Chanf/itu/ Needs of the Federal Appellate Systetn, 59 Cornell L. Rf.v. 
576 (1974) ; Statements of Judge llujstedlcr and of Mr. Griswold Before the Coniniission 
on Revision of the I'ederal Court Appellate Systetn. .April 1, 1974. 



280 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Details are botli varial)le and hazy. Some, like Dean (iriswold, favor lifetime 
appointments to the new division for stability and continuity of decision ; 
others, like Professor Carrington, prefer brief assignments of regular circuit 
judges, perhaps by the Chief Justice, to avoid specialization or to relieve 
l)ressures on the appointing process. Some, like Judge Hufstedler. would have 
the new court review decisions of the regional circuit courts : others, including 
Dean Griswold. would give it jurisdiction now vested in the regional courts 
in order to avoid a fourth judicial tier. The plans of the ABA and of the 
Advisory Council of Appellate Justice would make decisions of the new court 
final only after they had lain before the Supreme Court for a specified time 
without adverse action. 

The most difficult problem, which is not adequately resolved by any of 
the proposals, would be establishing the criteria for determining which cases 
should go to the National Division. The ABA committee recommended that 
the Supreme Court should determine this question within guidelines s])ecified 
by Congress, suggesting j^ossible National Division jurisdiction over col- 
lateral attacks on criminal convictions, tax cases, review of federal admin- 
istrative decisions and cases from state courts of last resort. Judge Hufstedler. 
agreeing that Congress should list categories for the Supreme Court to choose 
from, includes tax and patent cases, direct and collateral review of state crim- 
inal convictions, review of the NLRB, SEC, FCC, FPC, FAA and ICC, non- 
constitutional intercircuit conflicts, and such federal statutory matters as 
Congress may designate. Dean Griswold is less specific, arguing that the new 
court should have jurisdiction not of all cases within a subject category, lest 
it become overly specialized, but of cases "where a prompt decision, having 
nationwide validity, is desirable."''^" This, he says, would exclude nearly all 
criminal and diversity cases and "other types of cases turning largely on 
their facts, or without any general or national significance."'^"^ 

The variety of these proposals makes it difficult to evaluate their impact 
upon the system of judicial review of administrative action. In general, we 
endorse Judge Friendly 's criticism of the National Division proposals."''^- He 
sees no proof that the Supreme Court is too busy, leaves important conflicts 
too long unresolved, or wastes time resolving unimportant ones. He doubts 
that the circuit courts would be significantly relieved by creating an addi- 
tional court to review their decisions. He fears that the new scheme would im- 
pose additional burdens on the Court because its inaction would result in 
the establishment of national law. He points out that there are too many ad- 
ministrative appeals to be lodged in a single court and that centralization 



360. Griswold, supra note 359, at 632. 

361. Id. at 629. 

362. Sec Friendly, supra note 291 ; Statement of Judge Friendly Before the Cunnnis 
sioii on Revision of the Federal Court Appellate System, 1974. 



JUDICIAL REVIEW OF FEDERAL ADMINISTRATIVE ACTION 281 

would impose a substantial financial burden on the small litigant in many 
administrative cases. 

If the National Court were to replace rather than to review the circuit 
courts, its impact would be similar to that of a general court of administrative 
appeals to the extent that its workload consisted of administrative cases. 
Commingling some nonadministrative cases would help retain a generalist 
perspective but would imjjair the ability of the new court to develop a con- 
sistent administrative law. The problem of centralized power over important 
areas of the law would remain, as would a serious risk of jurisdictional liti- 
gation unless lines were drawn very carefully indeed. To give the new court 
jurisdiction over "all cases needing prompt national decision," for example, 
would create hideous jurisdictional disputes. 

If, on the other hand, the National Court were to review decisions of the 
courts of appeals, conflicts could be resolved without losing the value of diverse 
views where that is significant. But the relief such a scheme would afford the 
ordinary courts would be much reduced, for all cases reaching the new court 
would already have been litigated through the circuit courts. Professor Car- 
rington anticipates that once an issue has been settled by the new court, suits 
raising the same (|uestion would no longer be filed, as they now are, in other 
circuits. •^"•'* Quantifying the saving is obviously difficult. And the additional 
price of this scheme is to subject the i)arties to the costs and delays of still 
another level (}f appellate review. We view this as the less desirable alter- 
native.'*^^ 



363. Carriiigton, supra note 31, at 616. 

364. .^s tills Article went to the i)rinler, the Coiiimission on Revision of tlie l-'cderal 
Court .Appellate System unveiled a proposal for the creation of a iiernianent National 
Court of Ai)peals to decide cases referred by the Supreme Court or transferred by a court 
of a])peals. Sec Remarks of Senator Roman L. Hruska at the National Conference on 
.•\pi)ellate Justice. Jan. 26, 1975, reprinted iii 121 Cong. Kcc. S 1077-80 (daily ed. Jan. 28. 
1975). The Supreme Court could refer any case within its api)cllate jurisdiction and would 
be expected to i)romulgate rules to govern its discretion in so doing. The courts of appeals 
could transfer any case in which there was an actual intercircuit conflict or in which "a 
l)crsuasive showing" was made that "an immediate authoritative determination" of a dis- 
|)ositivc, recurring c|uestion of federal law was "in the national interest." The National 
Court could refuse to accept ca.ses transferred from the regional courts, and its decisions 
on the merits would be reviewable on certiorari. 

We have not yet had an opportunity to give this important new proposal the careful 
consideration it deserves. We do, however, perceive some difticulties. The proposal deals 
directly with one of the problems discussed in this section: the lack, as Senator Hruska put 
it, of "confidence that the Sui)reme Court in the decades ahead can be expected ade(|uately 
to satisfy the needs for stability and harmony in the national law as the demands continue 
to increase." Id. at S 1078. It api)ears largely to avoid the problem of a fourth tier, as in 
nearly all cases the new court would supplant either Supreme Court or court of appeals. 
But we do not share the Commission's view that "there would be no occasion for litigation 
over juri.sdiction." Presumably this conclusion is based upon the fact that the decision to 
send a case to the National Court would be discretionary and (we would fervently hope) 
not itself subject to review. But cj. 28 U.S.C. § 1404(a) (1970), authorizing interdistnct 
transfers for litigation convenience; some .such decisions have been reviewed by mandamus 
under 28 U.S.C. § 1651 (1970), sec. c.n., Hoffman v. Blaski. 363 U.S. 335 (1960), We do 
not think the discretionary nature of tJie decision precludes litigating about it. While little 
additional effort might be required of either the parties or the judges in Sui)renie Court 
cases in which jurisdictional papers already must be prepared, the Commission's proposal 



282 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

The question remains what to do about overload problems in the 
courts of appeals. It may be that the creation of an administrative court is the 
least of evils. We hope not. It would be a pity to create an inferior system 
of judicial review because no better way can be found to restore to the fed- 
eral courts the time required to do their job.^®^ 



would impose a new certiorari-like practice upon the courts of appeals. Moreover, the 
parameters governing that practice, except in cases of actual conflict, are at this stage 
vague enough to give rise to real problems. .A^ broad view of when "an immediate authori- 
tative determination" would be "in the public interest" might strip the regional courts of 
ail but routine cases, eliminate the benefits of diverse judicial views — a i)roblem adverted 
to but not resolved by Senator Hruska — and either swamj) the National Court or neces- 
sitate wholesale and time-consuming retransfers. Surely no such interpretation is intended, 
but we must confess an inability to perceive even a subjective criterion short of this that 
lends meaningful content to the proposed test for transferability. At the other extreme, 
regional courts jealous of their interesting cases might frustrate the purpose of this 
scheme by excessive hostility to transfers. At this problem stage, therefore, we have 
doubts as to the administrability of the proposal. Perhaps when the Commission fleshes 
out the bare bones of its ideas, it can satisfy those reservations. Perhaps further reflec- 
tion will convince us that the difficulties noted above are not as serious as we now believe 
them to be. Our tentative view, however, is that the problem of unsettled national law 
would have to be considerable indeed to justify the adoption of the Commission's plan. 
365. Sec Hines & Nathanson. supra note 309, at C-7, C-20. 



REPORT IN SUPPORT OF 
RECOMMENDATION 75-4 

(As published in Environmental Law Reporter, No. 1975, 5ELR 50211) 

The Procedures to Ensure Compliance by Federal Facilities with 
Environmental Quality Standards 

William R. Shaw* 
Introduction 

In Chattanooga, Tennessee, as in hundreds of other communities and 
states, air pollution is a vital concern. Consequently, the Hamilton 
County Air Pollution Control Board has been authorized to fight air 
pollution in several ways. One is to require that stationary sources of air 
pollution (e.g., incinerators, factories, hospitals and even apartment 
complexes) obtain permits to continue emitting smoke and other gas or 
particulates into the atmosphere. The permit requirement is used to 
learn how much pollution such facilities are creating and, if in violation of 
local standards, how they intend to reduce it. A permit is required of 
every owner or operator of a stationary facility capable of producing air 
pollution. However, one local facility, the Volunteer Army Ammunition 
Plant, has refused to comply with this permit requirement. Its refusal is 
premised on the ground that because the plant is owned by the United 
States Department of the Army, although operated by a private concern, 
the plant is a federal facility,^ to which the County Board permit re- 
quirement does not legally apply. Consequently, litigation is now pending 
between the County Board and the Secretary of the Army to determine 
whether the Board has the authority to require that the federal facility 
obtain a permit. ^ The federal officials responsible for the plant have 
promised repeatedly that the Volunteer Plant will comply with the 
County Board's air quality standards, but continue to refuse to submit to 
the County permit requirement. Local officials are skeptical; in their 
view, full compliance without a permit is illusory. 

While this conflict was developing in Tennessee, a different procedure 
led to a different result in Estaceda, Oregon. The Eagle Creek National 



* J.D., M.P.A. Cornell University, 1973. Mr. Shaw is an attorney on the staff of the Chairman of the Administrative 
Conference of the United States. 

This article is based on a report which was prepared for the Committeeon Complianceand Enforcement Proceed ingsof 
the Administrative Conference of the United States in support of a recommendation on the same subject. The report 
represents only the views of the author While it has not been approved by the Committee or the Administrative 
Conference, the recommendation which it supported has since been adopted by the Conference. See Appendix A, 5 ELR 
50228. 

' Federal facilities are defined by S2(4) of Executive Order 11752, 38 Fed. Reg. 34793 (Dec. 19, 1973), to mean "the 
buildings, installations, structures, land, public works, equipment, aircraft, vessels, and other vehicles and property, 
owned by, or constructed or manufactured for the purpose of leasing to, the Fe<leral Government." 

2 Hamilton County v. CaUaway, Civil Action No. 6581 (E.D. Tenn.). 

283 



284 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Fish Hatchery there is a federal facility owned and operated by the 
United States Fish and Wildhfe Service. This hatchery had discharged 
pollutants into Eagle Creek which decreased the oxygen content, raised 
the temperature and created aesthetic problems. The State of Oregon 
requires a water discharge permit for each facility capable of polluting the 
waters of Oregon. Unlike the permit system in Chattanooga, however, 
permits enforcing the Oregon law are issued by the United States En- 
vironmental Protection Agency (EPA) if the discharger is a federal 
facility. As a result, the Eagle Creek National Fish Hatchery applied for 
a water discharge permit from the regional office of EPA, which issued a 
permit to the hatchery on the condition that the hatchery meet a com- 
phance schedule requiring it to purify its water by December 31, 1976. 
The compliance schedule requires the purchase and installation of 
necessary waste water treatment equipment. There is no lawsuit or 
conflict between local and federal officials in Estaceda. 

These two situations illustrate the inconsistent compliance procedures 
which have been developed to ensure that over 20,000 owned and 60,000 
leased federal facilities meet environmental quality standards.^ These 
facilities include defense installations, fish hatcheries, national parks, 
research parks and laboratories, hydroelectric dams, nuclear power 
plants, hospitals, prisons, naval vessels and numerous other sources of 
environmental pollution. Congress has directed that these facilities meet 
state and local pollution control standards "to the same extent [as] any 
person." '* The President has directed agency heads to see that facilities 
within their administrative control meet federal and non-federal en- 
vironmental quality standards. The agency heads, themselves, have 
issued implementing regulations.^ Yet inconsistent and inadequate 
enforcement procedures jeopardize the attainment of statutory stand- 
ards. Instead of leadership in the nation's environmental effort or, at 
least, equal compliance with the obligations imposed on private en- 
terprise, present compliance procedures have engendered insufficient 
efforts to ensure federal facility compliance with environmental quality 
standards.^ 



' General Services Administration (GSA), hiventori/ Repoii of US. Owned Real Propetiy, June 30, 1974, p. 8; 
GSA. Real Propeiiy Leased to the US. Throughout the World. June 30. 1974, p. 7. 

«Section313oftheFe<ieralWaterPollutionControlAct(FWPCA),asamended,33U.S.C.!)1323(Supp. II, 1972).See 
identical requirements in >!ll8 of Clean Air Act (CAA). 42 U.S.C. >J18o7(f) (1970), and U of the Noise Control Act, 42 
U.S.C. S4903 (Supp. II. 1972). See also, E.G. 11752, 38 Fed. Reg. 34793, ELR 45017 (Dec, 19, 1973). 

^See. for e.xample. Department of Defense Directive N'o. 5100.50 (May 24. 1973, as amended), Department of 
Agriculture Property Management Regulations, 5104-52.000 (Nov. 1971, to be amended soon). 

* It is important to note that the National Environmental Policy Act of 1969 (42 U. S.C. 5i!4321 et seq.) fails to provide 
an effective means of addressing the problem of pollution from federal installations. NEPA's requirement that the 
responsible federal official prepare a statement detailing the environmental impacts of major federal actions significantly 
affecting the environment has had a profound influence on federal procedure and on agency decision making. However, the 
requirements of NEPA apply to new facilities or large additions or modifications to e.xisting facilities, rather than to 
federal installations operating in the same manner now as they have for some time. Moreover, NEPA's operative 
provision, the impact statement requirement, is directed more at bringing about changes in federal decision-making 
practices than it is at the content of the decisions reached. NEPA. in itself, therefore, does not necessarily bring about 
specific reductions in levels of pollutant generated by federal facilities. 



ENVIRONMENTAL QUALITY STANDARDS 285 

This article will examine the compliance programs imposed on federal 
facilities in five environmental areas: air, water, soHd waste, noise, and 
ocean dumping.*^ Five different sets of procedures for ensuring com- 
pliance are currently in effect, one in each of these areas. The analysis 
which follows will suggest several recommendations which aim at a more 
uniform and effective federal compliance effort. 

/. The Mandate to Abate (1948 to the present) 

Over 25 years ago Executive Order 10014 ^ directed federal agency 
heads to cooperate with state and local officials in an effort to reduce 
water pollution. In 1958, a similar order was issued in response to the 
growing concern over air pollution.^ In 1966 two revisions were made: 
one for water ^^ and one for air.^^ These revisions required agency heads 
to investigate their needs for pollution control equipment and to submit a 
request for funds along with plans for improvement to the Bureau of the 
Budget. Although these revisions directed agency heads to continue 
cooperation with state and local officials, the responsibility to ensure 
compliance with environmental quality standards remained with the very 
agencies that operated the facilities. 

In early 1970 the executive orders were revised and superseded by 
Executive Order 11507.^^ This revision was a substantial improvement, 
setting more precise standards for compliance. It required that agency 
plans for improvement be submitted to the Director of the Bureau of the 
Budget (now the Office of Management and Budget (0MB)) "to facilitate 
budgeting for necessary corrective and preventive measures." It re- 
quired concurrence by the "respective Secretaries" (now the Adminis- 
trator of EPA) with the "performance specifications" outlined in the 
agency plans. And it guaranteed that funds allocated for pollution 
abatement projects "would not be diverted to other uses." The Presi- 
dent's statement that accompanied the Order promised a renewed federal 
effort "to sweep its own doorstep clean." 

The plans which Executive Order 11507 required from agency heads 
are still the heart of the Administrative strategy to ensure federal facility 
compliance with environmental quality standards although the order was 
superseded by Executive Order 1 1752 in 1973. ^^ This strategy calls for an 
assessment of needs and the development of necessary plans by the 



'(l)FederalWaterPollutionControlAct,33U.S.C. §§1251 ef«e9.(Supp. II, 1972); (2) Clean Air Act, 42 U.S.C. §1857 
(1970); (3) Noise Control Act, 42 U.S.C. §§4901 el seq. (Supp. II, 1972); (4) Solid Waste Disposal Act, 42 U.S.C. §§3251 et 
seq. (1970); and (5) Marine Protection, Research and Sanctuaries Act; 33 U.S.C. §§1401 et seq. (Supp. II, 1972). 

»3C.F.R. 836(1948). 

« E.G. 10779, 3 C.F.R. 421 (1958). 

'<> E.G. 11288, 3 C.F.R. M9 (1970). 

" E.G. 11282, 3 C.F.R. 549 (1970). 

" E.G. 11507, 3 C.F.R. 277, ELR 45001 (1973). 

" E.G. 11752, supra n. 4. 



286 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

agencies responsible for each federal facility. The plans are then submit- 
ted to 0MB for special consideration and inclusion in the President's 
Annual Budget. 0MB circulars A-78 and A-81/^ dealing with air and 
water pollution control equipment respectively, focus special attention on 
all budget requests concerning air and water pollution control equipment. 
EPA's Office of Federal Activities (OF A) also receives copies of these 
agency plans and budget requests. This office secures comments from 
EPA regional staff and attaches a "high," "medium," or "low" priority 
rating to each proposal. Only then does 0MB decide whether to include 
the request in the President's Annual Budget. Several years experience 
with this procedure has produced very few "low" ratings by OFA, and 

still fewer omissions of the agency requests from the President's Annual 
Budget. 15 

This administrative strategy has worked well in many instances as 
Table I reveals. 



TABLE I 

Proposed Projects to Implement 0MB Circulars A-78 and A-81 *^ 

FY 1973 FY 1974 FY 1975 FY 1976 

Number of Projects 
Proposed 1,982 647 549 906 

Number of Depts. and 

Agencies Proposing Projects 13 13 16 16 

Estimated Cost of Projects 

Proposed (in millions) $394.7 $432.8 $401.3 $574.8 



Whenever facility operators and their agency supervisors have, in fact, 
assessed their needs and proposed plans and budget requests, then the 
0MB program has virtually assured that funds are appropriated and 
spent on the proposed equipment. Regrettably, many facility operators 
and, in turn, their agency supervisors, have been cynical and suspi- 
cious. ^^ They have feared that the funds for the proposed projects would 
be taken from elsewhere in their operating budgets and have recognized 
that related increases in operating and manpower budgets necessitated 
by the new equipment would not be given special consideration by 0MB. 
Consequently, some have chosen not to initiate plans and budget re- 
quests, thereby aborting the whole strategy. 

In the same year that Executive Order 11507 was issued. Congress, 
dissatisfied with the progress to date, revised its statutory requirements 



'* These circulars have been revised and consolidated in Circular A-106 (ELR 47009). 

" See Shaw, Review and Evaluation by the EPA of Proposed Air Pollution Control Projects at Existing Federal 
Facihties, IAS 73-12 (1974) (unpublished report for the Administrative Conference of the United States). 

'« EPA's Report to 0MB, Pollution Abatement Needsat Federal Installations, forflscal years 1973, 1974, 1975, 1976. 
" As reported by 0MB budget examiners. 



ENVIRONMENTAL QUALITY STANDARDS 287 

for federal facilities. Section 118 of the Clean Air Act was added to 
require expressly that agency heads "shall comply with Federal, State, 
interstate, and local requirements ... to the same extent that any person 
is subject to such requirements. . . ." In 1972 the same language was 
included in the amendments to the Federal Water Pollution Control Act 
(FWPCA), and in §4 of the Noise Control Act of 1972.^8 Thus, by the end 
of 1972 Congress had imposed the same requirements upon federal facili- 
ties with respect to air, water and noise pollution as are applicable to 
private facilities, in order to compel recalcitrant agencies to initiate the 
0MB procedures for securing pollution control equipment. 

In partial consequence of these three laws, other congressional acts,^^ 
and the ever-growing concern for environmental protection, the Presi- 
dent revised the executive order again in late 1973.^^^ This last revision 
expanded the coverage of the order to include five more pollution areas: 
ocean dumping, solid waste, noise, radiation and pesticides. Significant- 
ly, it also shifted some responsibility from agency heads to the Ad- 
ministrator of EPA. 2^ Under the new Executive Order 11752, he is 
directed to (1) "maintain a review of Federal facilities compliance," (2) 
"mediate conflicts between Federal agencies and State, interstate, or 
local agencies in matters affecting the application of, or the compliance 
with applicable standards," and, most important, (3) "develop in con- 
sultation with the heads of other Federal agencies a coordinated strategy 
for Federal facility compliance with applicable standards. . . ."Pursuant 
to the new executive order, 0MB has replaced Circulars A-78 and A-81 
with Circular A-106 (December 31, 1974) which includes the additional 
five pollution areas. Thus, at the end of 1974, it appeared that the 
President had implemented a consistent and adequate administrative 
procedure. Federal facilities were directed to request sufficient funds for 
pollution control equipment for seven major environmental areas. 
Requests made pursuant to the 0MB Circular were virtually assured 
success in the appropriation process. 

Despite this appearance of consistency and effectiveness, the strategy 
has serious shortcomings. It has worked quite well in securing necessary 
funds whenever facility operators decide to improve then- pollution 
control equipment. But it has failed to ensure that federal facility 
operators seek those funds in the first place. Reliance on a carrot without 
an effective stick is like using a vise with only one jaw. A two-pronged 
management scheme is needed given the competing pressures on agen- 



" Section 313 (33 U.S.C. §1323) and S4 (42 U.S.C. §4903) respectively. 

'» Resource Recovery Act of 1970, 42 U.S.C. §§32.51 et seq. (1970); Marine Protection, Research and Sanctuaries Act, 
supra, n. 7; Federal Environmental Pesticide Control Act (FEPCA), 7 U.S.C. §135 (Supp. II, 1972); and §274(h) of the 
Atomic Energy Act, 42 U.S.C. §2021(h) (1970), as amended and transferrcl to EPA under Reorganization Plan No. 3 of 
1970 (ELR 48001). 

*« E.G. 11752, Hupra n. 4. 

" Id.. §3(d). 



288 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

cies and individual facilities. Every responsible administrator must 
weigh protection of the environment against production goals, personnel 
problems, budget restraints and other pressures or agency missions. To 
ensure that federal facilities will undertake the necessary actions to 
comply with environmental quality standards, an enforcement scheme 
must include compliance procedures which ensure the necessary actions 
by the agencies responsible. The scheme now in operation lacks the 
necessary compliance procedures in several of the program areas. In fact, 
no two program areas have similar compliance procedures. The different 
enforcement strategies in each program area are the subject of the next 
section. 

//. Existing Compliance Programs 
A. Water Quality 

Maintenance of water quality is a long standing environmental problem 
and was initially a non-federal concern within the police power of the 
states. Over the last quarter century, however. Congress has steadily 
increased the federal role pursuant to its constitutional authority over 
interstate commerce and the health and welfare of the nation's citizens. 
The 1972 Amendments to the Federal Water Pollution Control Act mark 
the most serious intrusion in this previously state-dominated area. Cen- 
tral to the amendments is the National Pollutant Discharge Elimination 
System (NPDES),^^ which imposed a permit requirement for the dis- 
charge of any pollutant into the nation's waters. As of December31, 1974, 
all dischargers must have secured a permit from either EPA or a state 
agency which has a permit system approved by EPA. In order to secure 
the permit, dischargers must meet or have scheduled to meet a "best 
practicable" treatment standard by July 1, 1977 and a "best available" 
treatment standard by July 1, 1983. In other words, for the first time, 
those who use the water for waste disposal must demonstrate they are 
endeavoring to terminate this use. 

The Administrator of EPA has delegated his NPDES permit authority 
to his ten regional administrators. Ultimately, it is intended that the 
permit authority will be delegated further to the states. ^^ In fact, 24 
states already have submitted to EPA their proposed programs to 
implement a permit system and EPA has approved over 20 of these. 

Permit requirements help environmental protection efforts by putting 
the major burden of enforcement on the water users, who must assess 
their need for pollution control equipment and provide information and 
plans for compliance to the permit authorities. This technique of en- 



« S402 of FWPCA, 33 U.S.C. §1342 (Supp. II, 1972). 
" Id., S402(b). 



ENVIRONMENTAL QUALITY STANDARDS 289 

vironmental protection is a significant improvement over procedures 
which require pollution control authorities to inspect each facility that 
may pollute the water and issue citations to those not in compliance. The 
permit system thus provides a strong stimulus for self-enforcement and 
simpUfies the official's task by providing initial data for an investigation. 

Equally important is the provision for involving the interested public. 
The NPDES system has an elaborate procedure which requires that the 
public be given notice and opportunity for comment on permit applica- 
tions. Public hearings and "adjudicatory hearings," with appeals to the 
Administrator and the courts, may be held to review permits. ^^ As these 
hearing and appeal mechanisms are available to "any person," they 
provide an opportunity for the interested public to criticize inadequate 
permit conditions. There is also a citizen suit provision in the Act itself 
which allows recourse to the courts to stop violations of the Act or its 
implementing regulations.^^ 

The NPDES is now well-established. Hostility and litigation exist, but 
the issues raised concern the operation of NPDES, not the underlying 
authority. Over 30,000 industrial applications and 20,000 municipal ap- 
plications are on file at EPA. Five thousand of these comprise "major 
sources," generating 90 percent of all water pollution, and EPA has 
issued permits to nearly all of these dischargers.^^ 

Continuing controversy surrounds the question of how the NPDES 
applies to discharges from federal facilities. Pursuant to §402 of the Act, 
the Administrator of EPA has received applications and issued permits to 
the federal facilities subject to the NPDES. ^' When confronted with the 
question of whether to delegate this authority to those states submitting 
acceptable PDES programs, EPA chose to reserve its authority to issue 
permits to federal facilities. ^^ This reservation of permit authority was 
challenged by two states in lawsuits consolidated before the Ninth Circuit 
Court of Appeals. That court recently held in California v. EPA ^9 that 
§313 of FWPCA requires federal facilities to comply with state pro- 
cedural (permit) requirements in addition to state substantive re- 
quirements. It therefore ordered EPA to rescind the regulations which 
reserved to EPA the permit authority for federal facilities. ^° It further 
ordered EPA to stop rejecting the PDES programs for the states of 



»«40 C.F.R. 125.32, 125.35, 125.36, and 125.36n; 33 U.S.C. 51369(b) (Supp. II, 1972j. 

» 33 U.S.C. §1365 (Supp. II, 1972), 

** Energy and Environmental Analysis, Inc., Assessmentof the National Pollutant Discharge Elimination System of 
Public Law 92-500, unpublishe<l study prepared for the National Commission on Water Quality, 140-143 (1975). 

" EPA has relie<l on §§402, 313 and 301(a) of FWPCA to issue permits to federal facilities. However, the Department 
of Justice, Division of Lands and Natural Resources, has expressed doubt that these sections are explicit enough for the 
authority assumed by EPA. .See Memorandum from Wallace H. Johnson, Asst. Attorney General, responding to an 
earlier draft of this article, dated Mar. 27, 1975, on file at the Administrative Conference. 

"40 C.F.R. 125.2. See also §1 of E.G. 11752, Rupra n. 4. 

» 511 F.2d 963, 5 ELR 20213 (9th Cir. Feb. 13, 1975), cert, granted 43 U.S.L.W. 3674. 

"40 C.F.R. 125.2(b). 



290 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Washington and California simply because they included federal facilities 
within the scope of their permit authority. 

The Court of Appeals concluded that the language in §313, when read in 
the context of the whole Act, was sufficiently clear to constitute a waiver 
of the Plenary Powers Clause and the Supremacy Clause of the Con- 
stitution. It reached this result in spite of its admission that the legisla- 
tive history was ambiguous, and it gave short shrift to Executive Order 
11752 and the Sixth Circuit Court of Appeals' recent decision to the 
contrary. 3^ Appeals from both decisions are slated for argument this 
term before the Supreme Court. 

The decision in Calif ormia v. EPA, if allowed to stand, may cause 
considerable turmoil. Federal facilities now are willing to apply for 
permits from EPA. They have shown great reluctance to apply for state 
permits, despite their obligation and stated intention to meet state and 
local substantive requirements. The most commonly expressed concern 
is the myriad of forms and procedures Hkely to deluge those federal 
agencies which own or operate facilities in numerous states. ^^ In short, 
opposition has not been addressed to the permit requirement, but to the 
balkanization of its administration. 

B. Air Quality 

The second environmental program covered by Executive Order 11752 
concerns air quality. Historically, the preservation of air quality has also 
been a state and local responsibility. Under the Clean Air Act of 1970, 
however. Congress directed the Administrator of EPA to develop mini- 
mum standards and prescribe essential elements for enforcement pro- 
grams which each state must develop and maintain. Since 1970 all 50 
states have submitted and received at least partial EPA approval for 
their State Implementation Plans (SIP's). These plans are the heart of 
the statutory enforcement scheme for stationary sources of air pollution 
emissions. ^^ Each state has established certain Air Quality Control 
Regions (AQCR's) and designated maximum emission standards 
applicable to each pollutant in each region. The SIP's then prescribe the 
states' enforcement programs to ensure compliance with those stand- 
ards. Approximately one-half of the states require permits be obtained 
by operators of stationary sources of air pollution. The permits are often 
conditioned on schedules which ensure future compliance. 



3' In Kentucky v. Ruckelshaus, 497 F.2d 1172, 4 ELR 20484, (6th Cir. 1974), cert, granted 43 U.S.L.W. 3499, that 
court held that virtually identical language in *tll8 of the Clean Air Act did not require federal facilities to comply with 
state procedural requirements. See text accompanying n. 34, infra. 

'^ See agency responses to an earlier draft of this article, on file at Administrative Conference of the United States. 

^ Motor vehicle emission and fuel standards are treated separately. Title IloftheClean Air Act,42U.S.C. §§1857f-l 
et seq. (1970). The air pollution control program for motor vehicle emissions and fuel standards is focused on the 
manufacturing and distribution stages for motor vehicles and fuels. Since federal facilities are affected only indirectly, this 
article has omitted discussion of this subject. See the discussion in Subsection F, infra, concerning pesticide control. 



ENVIRONMENTAL QUALITY STANDARDS 291 

Section 118 of the Clean Air Act imposed state and local air quality 
control requirements on federal facilities, unless exempted by the Presi- 
dent in "the paramount interest of the United States." As noted above, 
virtually the same requirement now appears at §313 of the Federal Water 
Pollution Control Act and §4 of the Noise Control Act. These sections 
require federal facilities to comply with state and local requirements to 
"the same extent [as] any person." That provision, coupled with the 
SIP's, suggested to many a rather simple enforcement scheme, namely 
that states impose SIP's equally on federal facilities and private en- 
terprise. The simplicity of the proposal has not, however, insured its 
acceptance. Federal agencies have not agreed that such an appHcation of 
§118 is consistent with the Supremacy Clause of the Constitution, nor 
with the concept of sovereign immunity. Their argument, which echoes 
the losing viewpoint in California v. EPA, admits that §118 imposes 
state and local substantive air quality standards on federal facilities, but 
denies that it imposes state and local procedural requirements; in other 
words, it deems permits, administrative orders and other procedural 
enforcement devices to be outside the mandate of §118. 

This substantive-procedural gloss on §118 has been explored by two 
United States Courts of Appeals, which reached contrary conclusions.^"* 
An appeal is now pending before the Supreme Court. But it is unUkely 
that judicial resolution will insure effective compliance, for any decision 
will leave substantial procedural problems. If the Supreme Court upholds 
the states' authority to require permits, some agencies will have to 
comply with a multitude of different state and local procedures; if, on the 
other hand, the court rules against state procedural authority, that would 
leave only the present fragmented and ineffective federal procedures to 
ensure compliance by federal facilities with air and water quality stand- 
ards. A Supreme Court decision may not totally resolve the issue, 
however. Despite their parallel language, §118 of the Clean Air Act, §313 
of the FWPCA, and §4 of the Noise Control Act have differing legislative 
histories and statutory settings. In California v. EPA the Ninth Circuit 
explicitly stated that its decision interpreting §313 did not compel an 
identical interpretation of §118.^^ 

There is no federal permit program in air quality comparable to 
NPDES. EPA has a unique role in the enforcement of federal facilities 
compliance with air quality standards. Under Executive Order 11752 it is 
directed to mediate disputes between federal agencies and non-federal 
authorities and to develop a coordinated strategy for federal facility 



=" The Sixth Circuit in Kentucky v. RuekeLshaus heki that §118 of the Clean Air Act did not provide states with 
authority to require applications from federal agencies operating facilities in the state. The Fifth Circuit in Alabama v. 
Seeber, 502 F.2d 1238, 4 ELR 20793 (5th Cir, 1974) held to the contrary. California v. Stastny, 2 EI.R 205(;i, 4 ERC 1447 
(CD. Calif. 1972) raised the same issue, and is now on appeal before the Ninth Circuit (No. 72-2905). See further 
discussion of the judicial confusion in this area in the text accompanying footnotes at 84-99. 

» 511 F.2d 96;?, 973; 5 ELR 20213, 20217. 



292 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

compliance. Pursuant to this authority, EPA has developed a compliance 
strategy. Relying upon the cooperation of federal facilities and non- 
federal authorities, EPA proposes the drafting of "consent agreements" 
between non-complying federal facilities and EPA, co-signed by state 
enforcement officials. These "consent agreements" resemble the consent 
decrees used in some state enforcement programs as a device for securing 
compliance by private enterprise, but how EPA intends to get federal 
facilities to sign agreements is problematical. The method of enforcement 
is not discussed by the EPA compliance guidelines. ^^ 

When dealing with private enterprise, states can issue "administrative 
orders" which impose sanctions for non-compliance. Under this threat of 
enforcement and penalty, private concerns often agree to "consent 
decrees," which may be judicially enforced. But EPA does not have any 
threat of enforcement to compel or coerce agencies to execute a "consent 
agreement." Nor do the EPA compUance guidelines make clear whether 
or how EPA would enforce any such executed "consent agreements." The 
agreements are premised on cooperation by federal facilities — an un- 
tested and probably unrealistic expectation, since the cooperation is 
being sought from facilities that are already in non-compliance. Far more 
troubling is the fact that the agreements are concluded in sessions closed 
to the public. Only state enforcement officials are invited. This leaves 
room for compromise that may not reflect the local public interest. In fact, 
no public notice is given of the consent agreement sessions. The 
agreements are published only when complete, but, even then, only in 
the Federal Register; no local publication is required. 

The consent agreements are helpful in one respect, however. Because 
they compel agencies to focus attention on recalcitrant facilities, they 
may compel greater agency use of the 0MB Circular A-106 procedures to 
secure funds for improvement. The agreements will also provide greater 
specificity and commitment than now found in the compUance schedules 
which agencies unilaterally submit to 0MB under the A-106 Circular. 

The conclusions one reaches regarding the compUance procedures in 
the air quaUty area are confusing. There is a statutory mandate to meet 
non-federal requirements. If procedural requirements are not imposed 
by states, then by whom? EPA has developed a too restrained and 
optimistic consent agreement procedure. A citizen suit provision exists, 
but such suits are too quixotic and fortuitous to be relied upon as a regular 
enforcement procedure. Circuit Judge Lively has suggested that states 
employ the citizen suit provision and prosecute federal facilities in court 
rather than require permits,^' but that suggestion assumes states' at- 
torneys general have the time and staff to pursue the arduous task of 



^^ Sec Federal Agencies' Guidelines for Compliance with Stationary Source Air Pollution Standards, 40 Fed. Reg. 
20()(>4 (May 12, 1975). 

" Kentucky v. Ruckelshaus, supra n. 31 at 1177, 4 ELR 20487. 



ENVIRONMENTAL QUALITY STANDARDS 293 

investigation and court litigation. Permit procedures, containing 
necessary elements of fairness and opportunity for review, are far 
preferable. EPA has apparent authority to pursue litigation against a 
federal facility once a case of non-compliance can be proved. ^^ Whether 
EPA exercises that authority is apparently within the agency's discre- 
tion, ^^ however, and in any case it has a quiet policy of not litigating 
against sister agencies. Only recently has any hint of change been 
suggested. Last fall the Administrator of Region IV notified the Ten- 
nessee Valley Authority (TV A) of its non-compliance with state air 
quality standards in Alabama, Kentucky and Tennessee and offered the 
opportunity for a conference to discuss the violation.'**^ It also noted the 
statutory provision "^^ for further court action, if that should become 
necessary. Delivery of the notice was mandated by law, and although 
administrative orders were subsequently issued, any decision to pursue 
more stringent enforcement action lies within the discretion of the 
Regional Administrator. ^^ This episode reveals an initial willingness to 
achieve a workable compromise through a conference, followed by a 
tougher enforcement attitude in the face of continued recalcitrance. To 
construe this one example as signaling a major departure from the 
"consent agreement" strategy would be premature, however. The 
"consent agreement" strategy seems far more likely to prevail in future 
EPA actions against non-complying federal facilities, 

C. Solid Waste Management 

Solid waste generated by federal facilities is also covered by Executive 
Order 11732. Solid waste became a major federal concern with the 
enactment of the 1965 SoUd Waste Disposal Act, which, after several 
years of experience, was strengthened and renewed by the 1970 Re- 
source Recovery Act."*^ To date the legislation does not impose federal 
control over local standards and programs. Rather, the Act provides 
grants for demonstration projects and local programs. What legislation 
will ultimately emerge from the debate in Congress is hard to determine, 
but it is fairly certain that successor legislation of some sort will be 
adopted in this important area.'''* 

Section 211, which affects federal facilities, was added by Congress in 
1970 for reasons similar to the addition of §118 of the Clean Air Act, viz., 
that federal facilities should provide environmental protection leader- 



=" Section 113 of FWPCA, 33 U.S.C. «il323. 

=» Kentucky v. Ruckekhaus, supra n. 31 at 1177, 4 ELR 20487; New Mexico Citizens v. Train, 6 ERG 2061, 2065 
(D.N.M. 1974). 

•• Letter from Mr. Ravan, EPA Regional Administrator, to Mr. Wagner, Chairman TVA, Sept. 16, 1974 
" Section 113(e) of the Clean Air Act, 42 U.S.C. iil857c-8(c). 

«> 42 U.S.C. SS3251-59 (1970), ELR 41901. 

**See, e.g., S. 1774 (Resource Recycling and Conservation Act) and H.R. 5487 (Waste Control Act of 1975). 



294 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

ship. However, the language of this "federal facility section" is not 
consistent with §118 or similar sections in the water and noise control 
acts. Section 211 requires only that federal facilities comply with disposal 
guidelines promulgated by EPA; there is no requirement to meet state or 
local standards. The solid waste guidelines, authorized under §209 of the 
Act, are left to the discretion of the Administrator of EPA. Those 
guidelines were promulgated as proposed rules for review and comment 
on April 27, 1973. "^^ Sixteen months later came the long-overdue final 
rules. "^^ The preamble to the new rules admits they are less stringent than 
most state requirements. Specifically, they contain minimum re- 
quirements for both thermal treatment (incineration) and landfill disposal 
of solid waste. And they lack any procedures to ensure compliance with 
the standards established. Thus, the program provides still another 
unique and inadequate approach to federal facility pollution control. 

The revised 0MB Circular A-106 now mandates attention to solid 
waste disposal problems, requiring agency plans and budget requests for 
disposal equipment to be submitted and updated regularly; EPA's Office 
of Federal Activities is asked to comment on the priority that should be 
assigned to each such request. As noted, however, state rules and re- 
quirements are irrelevant despite the fact that they are often stricter. 
Thus, two neighboring communities — one a village, one a United States 
defense base — are held accountable to different standards. More im- 
portantly, the federal facility is not subject to any enforcement proce- 
dures. No permit program, no state or local enforcement, not even a 
citizen suit provision is available to ensure that federal facilities live up to 
these minimum guidelines. This fact is especially deplorable in light of the 
growing attention the state and local governments are paying to the 
problems of soUd waste. 

D. Noise Control 

The fourth area of environmental concern covered by the executive 
order is noise pollution. Once again. Congress has explicitly recognized 
the primary responsibility that state and local governments have over 
noise control.'*'^ Nonetheless, the Federal Noise Control Act brings the 
federal government squarely into the picture in several important ways. 
For example, it directs the Administrator of EPA, in conjunction with 
the Federal Aviation Administrator and the Secretary of the Department 
of Transportation, to promulgate noise emission regulations for aircraft, 
railroads and motor carriers engaged in interstate commerce.'*^ EPA 
alone is made responsible for developing standards for a variety of 



« 40 C.F.R. 240, 241; 38 Fed. Reg. 10544 (Apr. 27, 1973). 

♦« 39 Fed. Reg. 29328 (Aug. 14, 1974). 

«' Section 2 of the Noise Control Act, 42 U.S.C. S4901 (Supp. 1973). 

« Sections 17, 18, 42 U.S.C. §§4916, 4917, respectively. 



ENVIRONMENTAL QUALITY STANDARDS 295 

commercial products which contribute excessively to noise pollution.'*^ 
Nonetheless, the Act leaves most sources of environmental noise primar- 
ily within the control of non-federal agencies, mandating federal in- 
tervention only when factors such as interstate commerce are critical. 
Thus, railroads, interstate carriers and aircraft ^^ are all subject to 
federal controls which preempt local control. Needless to say, the inter- 
face between local and federal concerns cannot always be clearly defined. 

Recent technological developments have permitted development of 
particularized noise regulations which assign maximum decibel levels 
according to time, place, and source. At least 21 states have enacted land 
use noise control statutes, and five of these (Oregon, New Jersey, Il- 
linois, Colorado and Cahfornia) have promulgated regulations pursuant 
to those statutes. ^^ At least 11 states have ordinances for motor vehicle 
operation. Over 150 local governments have adopted land use noise 
control laws and over 50 have implementing regulations. Many more 
communities are seriously considering the use of comprehensive noise 
pollution control laws. With this proliferation in state and local noise 
control requirements, a problem arises for federal facilities operating 
within those local jurisdictions. 

The federal noise control law clearly covers federal facihties. Section 
three of the Act defines "persons" to include federal agencies. Section 
four uses the same language found in § 1 18 of the Clean Air Act compelling 
federal facilities to meet state and local requirements. As a result, the 
same legal questions exist over the question of whether "requirements" is 
defined to include procedural as well as substantive regulations. ^=^ Yet, 
several important distinctions need mention. First, the FAA and EPA 
have clear preeminence in regulating a major source of local noise pollu- 
tion — aircraft. Second, within the Act's requirements for new products 
an exemption has been carved out for the Defense Department, NASA 
and any other federal agencies using products such as machinery and 
equipment for "experimental work." ^^ Third, the procedures to ensure 
compliance by federal facilities are quite unclear. The only section pre- 
scribing enforcement of the Act provides for criminal sanctions and 
specifically precludes enforcement against federal officials. The citizen 
suit provision is of no more help than suggested above in the air quality 
area; it is quixotic and expensive, putting the entire burden on the private 
citizen qua prosecutor. 

For certain noise sources, the Secretary of Transportation or the 
Federal Aviation Administrator is given authority to secure compliance. 



•» Section 6, 42 U.S.C. §4905. These standards are enforced against the manufacturers, not users. Therefore, they 
would not be applicable to federal facilities directly. 

«> Section 7, 42 U.S.C. §4906. Although EPA develops these standards, the OF A reports that DOT/FAA issues and 
enforces them and that they are not subject to E.G. 11752. 

" EPA, Noise Source Regulation in State and Local Noise Ordinances (Feb. 1975). 

" See Air Transport Ass'n v. Crotti, 5 ELR 20236, 7 ERG 1748 (N.D. Calif. Feb. 1975). 

" Section 3(3)(B) of the Noise Control Act, 42 U.S.C. §4902(3)(B). 



296 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Whether and how they might direct sister agencies to comply is unclear. 
The fourth difference is the newness of noise control. Prior to 1970, noise 
control was a subcategory of nuisance law (statutory or judge made). 
Since then, technology, the primary cause of more noise, has developed 
techniques for its measurement, and enforcement can be precise and 
often prospective. However, little Utigation has developed to expose 
these new statutes and requirements to the scrutiny of the courts. 

The newness of noise control statutes is significant in another way. 
Although relatively few states have yet adopted noise control regula- 
tions, a few purport to bind federal facilities. For example, in Oregon the 
regulatory language expressly includes federal facilities within the scope 
of regulated persons subject to compUance.^^ Although litigation in the 
air quality area concerns the question of how non-federal agencies can 
enforce permit compUance against federal sources, its outcome may not 
resolve the issue for noise control. Rather than permits, the strategy in 
noise control involves prescribing strict limits and then enforcing com- 
pUance against individual violators; procedures generally call for in- 
spections or response to complaints. Once violations are apparent, local 
officials have authority to issue citations enforceable by local agencies or 
courts. Such procedures are bound to raise the same federalism difficul- 
ties experienced in the air quality programs. 

E. Ocean dumping 

The fifth area covered by the executive order is one which presents an 
example of good administration in a difficult field. The territorial seas are 
primarily a national concern due to their impact on national defense and 
interstate and foreign commerce. ^^ The marginal sea bed — out to three 
miles — is within the province of the riparian states, while the outer 
continental shelf is considered the province of the federal government. ^^ 
When pollution caused by ocean dumping became a significant national 
problem. Congress enacted the Marine Protection, Research and Sanc- 
tuaries Act of 1972 ^'^ to protect the nation's seas and sea beds. This ocean 
dumping legislation created yet another approach to the problem of 
ensuring that environmental standards are met by federal facilities. A 
reading of Title I reveals a proscription against ocean dumping by "any 
person" not holding a permit pursuant to the Act. The Act defines person 
to include "any officer, employee, agent, department, agency or in- 
strumentality of the Federal Government. . . ." ^^ Section 101 prohibits 



»« Oregon Administrative Rules, Ch. 340, 535-015(23) (1974). 

" United States v. Califoniia. 332 U.S. 19 (1947); United States v. Louisiana, 339 U.S. 699 (1950); United States v. 
Te.\as, 339 U.S. 707 (1950); and United States v. Maine U.S 5 ELR 20232, 7 ERG 1753 (1975). 

^ Submerged Land Act of 1953, 43 U.S.C. SS1301 et seq. and the Outer Continental Shelf Lands Act of 1953, 43 
U.S.C. SS1331 et seq. 

" 33 U.S.C. S1401 et seq. (Supp. 1973). 

s» Section 3(e) of the Marine Protection Act, 33 U.S.C. !(1402(e). 



ENVIRONMENTAL QUALITY STANDARDS 297 

"any person" without the requisite permit from transporting material 
from the United States to the territorial seas or 12 miles beyond for the 
purpcfee of ocean dumping. A separate proscription, directed exclusively 
at federal agencies (i.e., our overseas defense bases), bans the dumping of 
any material in any ocean v^aters if the material is being transported from 
outside the United States. 

Within these proscriptions, the only avenue for those interested in 
dumping refuse into the ocean is a permit issued either by the Army 
Corps of Engineers for dredged material or by EPA for all other material. 
No exemption is made for federal agencies, ^^ they must secure a permit in 
the same manner as anyone else. The permit process is described in the 
Act and the regulations issued by EPA and the Corps of Engineers. ^° 
Under the EPA regulations each applicant must provide basic informa- 
tion on what material he intends to dump and why. That application is 
made public and published in the local news media. If no objection is 
raised by the public or EPA, a permit listing restrictions and require- 
ments is issued by the Regional Administrator. If, however, any person 
wishes to object, a public hearing will be held in that region to consider 
the contents and issuance of the permit. The presiding officer may rec- 
ommend to the Regional Administrator whether to issue a permit or not, 
and what conditions, if any, should be imposed. This permit procedure is 
very similar to the water discharge permit system (NPDES) described 
earlier in Subsection A. The striking difference is that here the law 
clearly prescribes that a federal, not a state, agency shall issue the 
permits to its sister agencies. The problems of supremacy and sovereign 
immunity are thus avoided. Additionally, the hearing held is a public 
hearing, not an "adjudicatory hearing." 

The enforcement procedures for the ocean dumping program are simi- 
lar to the enforcement procedures for the NPDES. Section 105 of the 
Marine Protection Act provides for both criminal and civil penalties. 
Interestingly, despite the inappropriateness of both these sanctions to 
federal agencies, they are not exempt from either. Revocation of the 
permit is one viable enforcement option, but a more realistic alternative 
insofar as federal agency violations are concerned is the use of injunc- 
tions. Moreover, "any person," including state and local officials, can 
bring a citizen suit action against any federal agency or official for alleged 
violations of the Act or permit conditions. ^^ 

F. Pesticides, Radiation Control, and Safe Drinking Water 

The last areas of concern addressed in the executive order are pes- 



" An unresolved question is whether a loophole exists in § 107(b), which authorizes the Administrator or Secretary of 
Army to delegate some or all of their permit authority to other federal agencies. 

«° 40C.F.R. 220-227,38 Fed. Reg. 28610 (Oct. 15, 1973). See also the U.S. Army Corps of Engineers' procedures at 33 
C.F.R. 209.120, 39 Fe<i. Reg. 12118 (Apr, 3, 1974). 

«' Section 105(g) of the Marine Protection Act, 33 U.S.C. §1415(g). 



298 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

ticides and radiation. Both are somewhat unique, are distinct from the 
previous five categories, and merit the special statutory and regulatory 
treatment they receive. ^^ » 

The Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) was 
a response to the problems caused by use, mis-use and over-use of 
pesticides. This act has been substantially revised by amendments since 
enacted in 1942. The latest and most important amendment is the Federal 
Environmental Pesticide Control Act of 1972 (FEPCA).63 The main 
innovation of FEPCA was to give EPA authority to require registration 
of pesticides. It compels the manufacturers of pesticides to apply for and 
receive EPA registration and permission to distribute and sell their 
pesticides. While these provisions do not affect federal facilities directly, 
they do fall within the Act's provisions for enforcement against users of 
unregistered pesticides. To these provisions, however, there are two 
important exemptions applicable to local, state, and federal agencies. 
First, "any public official while engaged in the performance of his official 
duties" is exempt from the general coverage of the Act.^"* Second, there is 
a broad exemption from the ban against use of unregistered pesticides 
where the user is a federal or state agency. Section 18 provides authority 
for the Administrator of EPA to exempt any such agency whenever he 
determines emergency conditions exist which require such exemption. 
The Administrator has implemented that authority by promulgating 
rules for administering the exemption. ^^ These exemptions are rarely 
used. Instead, an agency may quietly urge EPA to register the pesticide 
in question, or grant an experimental use permit under §5.^^ 

One other federal facility involvement does arise with respect to §4 of 
the Act. That section requires pesticide applicators to be certified 
pursuant to federal standards, either implemented by EPA or by EPA- 
approved state certification programs. Certification is required whenever 
the apphcator is applying a pesticide registered for restricted use. In 
response to these provisions, EPA's certification rules establish a 
Government Applicators Program. Under this program, federal em- 
ployees receive forms upon completion of a federally-sponsored training 
course. Each state then either indicates blanket acceptance of persons 
with such credentials, or requires additional state level training courses. ^"^ 

In sum, it appears that pesticide problems, which affect air quality, 
water quality and solid waste management, are best treated with a 
compliance program distinct from air, water, solid waste, noise or ocean 



** Radiation is not only unique, but also extremely complex; the specific statutes and regulations controlling that 
subject require study and clarification on their own terms and will not be examined closely here. 

" 7 U.S.C. §136 et seq. (Supp. II, 1972). 

" Section 12(b)(3) of FEPCA, 7 U.S.C. §136j(b)(3). 

"40C.F.R. 116. 

'^See, e.g.. Environmental Protection Agency-Recent Developments, 5 ELR 10060 (Apr. 1975), 5 ELR 10164 
(Sept. 1975). 

" 40 Fed. Reg. 11698 (Mar. 12, 1975). 



ENVIRONMENTAL QUALITY STANDARDS 299 

dumping problems. That is not to say special treatment, loose control or 
other problems should be tolerated. Rather, it seems clear that pesticide 
control is best focused on manufacturers, none of which are public 
entities. The certification of applicators and the enforcement procedures 
to prohibit use of unregistered pesticides are clearly subsidiary measures. 

As for radiation, it is also sui generis. The problems associated with 
radioactive material arise in air, water and solid waste. For that reason, 
they are more akin to the problems encountered in the pesticide area than 
the others covered by the executive order. The national defense aspects 
of radioactive material further complicate any enforcement technique. 
Thus it is not surprising that EPA has a limited role ^^ in this area which 
is subordinated to the general responsibility of the Energy Research and 
Development Administration (ERDA) and the Nuclear Regulatory 
Commission (NRC), previously the Atomic Energy Commission. ^^ It is 
fair to conclude that radiation is a unique pollution problem that merits 
special attention outside the framework of this article.'^ 

An eighth area of concern is safe drinking water. The Safe Drinking 
Water Act,'^^ enacted December 16, 1974, contains federal facility 
comphance requirements which are somewhat different from all those 
previously discussed, but the fact that compliance procedures are as yet 
undelineated suggests that analysis at this time would be premature. 

With this conclusion of these brief sketches of seven pollution 
abatement programs covered by the executive order, and the one to be 
developed, which are apphcable to federal facilities, it becomes clear that 
at least five have substantially similar qualities, three have virtually 
identical statutory language and two have similar permit programs; yet 
no two have parallel administrative procedures. The next section will 
address the various issues that have arisen in this area to date. An 
effective uniform scheme of enforcement is also proposed. 

///. Issues and Analysis 

This section focuses separately on four major interrelated concerns. 
The first is the lack of a uniform statutory scheme ensuring federal 
facility compliance with environmental quality standards. The second 
problem is the inconsistent procedural options used to implement those 
three statutes which do have a uniform scheme for compliance. The third 



«« See *i274(h) of the Atomic Energy Act, supra n. 19, as amended and transferred under Reorganization Plan No. .3 of 
1970. SS2(a)(7), 6(2), effective December2, 1970. See al.io FWPCA§.502(6), supra n. 4; Marine Protection, Research and 
Sanctuaries Act, !)3(c), supra n. 7; and National Environmental Policy Act, S102(2)(C), nupra n. 6. 

«» Energy Reorganization Act of 1974, Pub. L. 93-4.38. 

™ The Tenth Circuit handed down a decision in late 1974 which further complicates this area. Colorado PIRG v. Train, 
507F.2d743, .5 ELR 20043, held that the Administratorof EPA had the "dutyof regulating the discharge of aU radioactive 
material into the Nation's waters. . . ." The implications of this conclusion are interesting, if sustained on appeal. ('/. 
California v. EPA, supra n. 29. 

" P.L. 93-523, to be codified at 42 U.S.C. <)300f-j; ELR 41131. 



300 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

concern involves the minimum elements of procedural openness and 
fairness that should be provided in any nev^^ or continued permit system 
implemented to control pollution emissions by federal facilities. Finally, 
there is the constitutional issue of supremacy, the doctrine of sovereign 
immunity and the persistent, though unnecessary intergovernmental 
conflict pervading this whole area. 

A. Uniformity of Statutory Obligations for Federal Facilities 

In three separate statutes dealing with air, water and noise pollution, 
respectively, Congress has inserted a section entitled "Federal 
Facilities." Each of these sections contains virtually identical language. 
In essence all require federal agencies to ensure that facilities owned or 
controlled by them comply with interstate, state and local pollution 
control requirements "to the same extent [as] any person." These sec- 
tions are intended to attain two goals while reinforcing a third, equally 
important concept. The first goal is to ensure that pollution control begins 
at home; the second is an equal treatment standard for enforcing pollution 
control against private and federal facilities. The concept which is 
reinforced is the continued pre-eminence of state and local agencies with 
respect to setting and enforcing pollution control requirements. '^ 

These goals and concepts are sound. With respect to the first, it is 
elementary that the federal intrusion into the province of pollution 
control, historically a state and local province, requires an effective 
commitment by the federal government to meet the requirements which 
it directly or indirectly imposes on private or non-federal enterprise. In 
fact, the leadership burden alone should dictate that the federal gov- 
ernment set an example by promoting environmental quality.''^ 

The second goal of these sections is equal treatment of federal and 
non-federal facilities. A looser standard, exclusively applied to federal 
facilities, corrupts federal integrity. For those citizens whose air is 
polluted or streams fouled or ears assaulted by a local facility, the 
ownership of the pollution source is irrelevant. An example occurred in 
the District of Columbia, when hearings were held concerning major 
sources of air pollution. Among the various facilities allegedly failing to 
meet their compliance schedules were the General Services Administra- 
tion heating plant, the Naval Research Laboratory, and the Anacostia 
Annex and Naval Station. The public witnesses ignored the question of 
ownership of the facilities. They simply wanted the pollution abated. "^"^ 



" This congressional recognition of state and local responsibility is explicit and implicit throughout all three en- 
vironmental statutes. See. e.g., )!2(a)(3) of the Noise Control Act, 42 U.S.C. iJ4901(a)(3). 

■"See 42 U.S.C. 54321 and E.O. 11752. 

''* See Proceedings of the D.C. Department of Environmental Services, In the Matter of Proposed Compliance 
Schedules of Major Air Pollution Stationary Sources in the D.C, February 28, 1974. 



ENVIRONMENTAL QUALITY STANDARDS 301 

More important, the equal treatment concept is essential for those 
enforcing pollution control requirements. Their zeal, loyalty and effec- 
tiveness are integrally related to their ability to treat all violators alike. 
This fact can be illustrated well with two examples. First, consider the 
situation faced by a regional water quality control board which is at- 
tempting to clean up sources of water pollution, while a mammoth De- 
fense installation and base is dumping nearly raw sewage near a local 
beach. "^^ How long can one expect continued efforts to halt individual 
septic system violations while a neighboring facility, owned and operated 
by the federal government, obliterates any environmental gains that 
might occur. Second, consider an instance where a state water pollution 
official is attempting to write an effective compUance schedule for a 
facility owned by a large private corporation. The official knows and 
argues persuasively that six months is a reasonable time for the corpo- 
ration to select, order, buy and install the necessary chlorine treatment 
equipment needed to control the pollution. Meanwhile, next door, a 
federal installation without any fear of sanctions for non-compliance or 
delay will agree only to a three year compliance schedule.'® Its argument 
is based on the long budgetary cycle of its "corporate" owner, the federal 
government. These examples illustrate the problems faced by en- 
forcement officials when compliance authority is unequal. 

The last aim of the "federal facilities" sections is to support the con- 
tinued preeminence of state and local governments with respect to estab- 
lishing pollution control requirements. Although the federal government 
has become more visible and has established many of the minimum 
requirements of state and local pollution control standards, nonetheless, 
non-federal agencies continue to set the final requirements which must be 
met by the citizenry. More important, the state and local enforcement 
activity is clearly more extensive than the federal effort. Both in terms of 
manpower and dollars, local and state inspections, citations, response to 
complaints and ultimate prosecutions constitute the bulk of this nation's 
environmental protection enforcement program. Of equal importance is 
the unique quality of the environment within each state and local juris- 
diction. This fact alone requires federal deference to environmental qual- 
ity standards set by officials in these local jurisdictions. Federal views as 
to what level of smoke or wastewater is reasonable need always to be 
measured against the local concerns for maintaining their environmental 
quality. 

It is appropriate to investigate why the above goals are found in only 
three of the five environmental areas. The omission in the ocean dumping 
area is understandable. There we address a problem more appropriately 



" See California v. Davidson, 1 ELR 20606, 3 ERC 1157 (N.D. Calif. 1971). 

™ Reported by Regional Engineer, New York State Department of Environmental Conservation, Region IX. 



302 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

national in scope. The 1972 Act prescribing the method to resolve this and 
related problems confronting our national seas virtually abandoned the 
state and local authority over adjacent territorial seas by setting federal 
standards and delegating the permit-granting authority solely to federal 
agencies (EPA and the Army Corps of Engineers). Thus, the Act attains 
the two goals sought with the other "federal facilities" sections. It re- 
quires that federal agencies, like private enterprise, must secure a per- 
mit before dumping waste in the ocean. It also establishes a uniform 
standard for compliance by federal as well as private permittees. The 
only distinction is the nominal role assigned to state and local govern- 
ment. This distinction is reasonable in light of the lesser involvement 
non-federal governments have historically had in patrolling the territo- 
rial seas. Consequently, the omission of a specific "federal facilities" 
section in the ocean dumping legislation is reasonable and consistent with 
the goals set forth above. 

The omission of a "federal facilities" section in the Solid Waste Disposal 
Act is more difficult to comprehend. The regulation of solid waste disposal 
has been almost totally within the province of state and local jurisdiction. 
State and local governments have extensive statutes and regulations 
concerning solid waste disposal, yet under federal law they do not apply 
to federal facilities. Perhaps the rationale for the unusual approach taken 
by this Act is the limited involvement by the federal government in the 
regulation of solid waste disposal. But this justification must surely fall 
before the weight of the arguments presented above for imposing non- 
federal standards respecting air, water, and noise control on federal 
facilities. First, the federal government clearly has a leadership role to 
play. In fact, the major thrust of the Solid Waste Disposal Act is to 
promote research and develop improved models of soUd waste disposal. 
Second, the concern over a double standard is just as vital here. A great 
deal of solid waste is disposed of by incineration, which is subject in part 
to local air pollution control requirements. Thus, for that method of 
disposal we have — statutorily at least — ended the double standard by 
enacting §118 of the Clean Air Act.''^ To avoid that double standard 
entirely, disposal of solid waste generated by federal facilities should be 
subject to state and local standards regardless of the disposal technique. 
The concept of continued pre-eminence by allowing state and local 
agencies to set the standards applies to soUd waste as well as air, water 
and noise. Addition of a "federal facilities" section to the Solid Waste 
Disposal Act would properly honor the concept of continued pre- 
eminence of state and local pollution control and would further the goals 
of leadership and equal treatment of federal facilities. 



" Cf. Greater Anchorage v. Johnson, 4 ELR 20818. 6 ERC 1989 (D. Alas. 1974) where defendants, employees of a 
United States-owned railroad, disposed of telephone poles by bumingthem in violation ofalocal air poUution standard. 



ENVIRONMENTAL QUALITY STANDARDS 303 

B. Administrative Procedure to Ensure Compliance 

If it is agreed that federal facilities should comply with state and local 
environmental quality standards (except with respect to ocean dumping), 
attention may be turned to developing the best method or procedure for 
accompHshing that task. Several options are available. The first option, 
now being used, has been described at some length, supra. In short, 
0MB Circular A-106 implements Executive Order 11752 by requiring 
agencies to assess their pollution abatement needs and initiate plans 
along with the requisite budget requests; the special attention given to 
these requests virtually assures availability of funds and requires that 
funds be spent on the plans proposed. The procedure also requires a 
regular update of developments within each agency. 

These procedures may appear adequate at the outset, but their 
weakness is that they rely on a premise which is too sanguine; the whole 
procedure depends on agency personnel taking the initiative to set the 
ball in motion. But, in reality, there are and always will be individual 
facility operators or other responsible agency officials who (1) recognize 
that not all the funds necessary will be provided {e.g., operation and 
maintenance of new waste treatment equipment), (2) are pressed by 
other administrative concerns '^^ or (3) are uncooperative and, con- 
sequently, will never address the problems or else will underestimate the 
needs. '^^ On the other hand, some may seek to use the A-106 procedure to 
secure equipment unrelated to pollution control. ^^ In either event, the 
0MB procedure overrelies on an incentive system — the carrot. 

The need for an effective stick, administered by an agency other than 
the facility owner or operator, is fully recognized in the ocean dumping 
and water programs as evidenced by the statutory imposition of a com- 
pliance scheme (permits) to ensure federal facilities meet the standards. 
It seems reasonable to suggest that the same or similar procedures to 
ensure compliance be implemented in the programs for air, noise and 
sohd waste as well. But what type of procedures? 

In ocean dumping and water pollution the Congress adopted a permit 
system. Half the states have done the same with respect to air pollution 
by stationary sources. Although the time-honored process of investiga- 
tion, citation and enforcement orders (whether by courts or administra- 
tive agencies) are alternatives worth considering, on balance the permit 
system seems preferable. Permit procedures require polluters to come 



" E.g., A Veterans Administration Hospital in Canandaigua, New York, was out of compliance with local air pollution 
regulations for a long period of time. The hospital administrator blamed his plight on budget constraints. 

" The Pugel Sound Air Pollution Control Agency reports continue<l non-cooperation from the United States Navy. 
See also affidavits of the Executive Officer of the California State Water Resources Boarrl, noted in California v. EPA, 
supra n. 29. Staff in the New York State Department of Environmental Conservation (Region VII) were summarily 
refused admission to the Seneca Army Depot until pressure was supplied from other federal officials. 

•" For example, an 0MB budget examiner reported one instance in which the need to remove sewage from a ship was 
used as the basis for a request for funds for an entire new pier. 



304 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

forth with information in their applications which accurately states their 
present emissions in both quantitative and qualitative terms. The ap- 
plications must also provide a schedule for compliance within the statu- 
tory deadlines, if present emissions are not within applicable standards. 
The merits of this approach are significant. Each facility is compelled to 
assess its own problems. Once compelled, some operators will comply 
merely upon knowing they do not meet the standards. Others, compelled 
at least to admit their non-comphance, will be forced to deal with the 
problem. In either event permits require facility operators to address 
their problem. 

The permit system has been criticized often as fostering legalized 
pollution. Admittedly, a permit does allow pollution to continue, but a 
permit system also requires all polluters to spell out their present levels 
of pollution, rather than rely on isolated spot checks by enforcement 
agencies. More important, permits require polluters to develop plans and 
compliance schedules to meet the standards within statutory deadlines. 
The administrative alternatives are (1) a case-by-case approach, with 
many polluters never being investigated or compelled to comply, or (2) an 
unrealistic, total ban on emission of pollutants. The growing use of 
permits for environmental protection reflects an acceptance of the facts 
that, although they are not perfect and do allow a continued level of 
pollution, they are preferable to ad hoc enforcement or total bans. Per- 
mits provide information and secure prompt compliance schedules with- 
out closing down valuable facilities in a wholesale fashion. 

An additional advantage to permits is the relative speed and ease of 
enforcement should the polluter fail to comply with specified conditions. 
Incomplete or inaccurate information results in refusal to grant a permit, 
and a permitless discharge is a prima facie violation of the law. Should 
EPA fail to prosecute that violation, the citizen suit provisions in most of 
these acts allow "any person" to enjoin the violator from further dis- 
charge of the substance at issue (air, water, noise or materials to be 
dumped in the ocean). Hence, any state or local official could utilize this 
provision to bring a quick and relatively sure-fire suit. Should a permit be 
issued and then the polluter fail to meet with a compliance schedule, again 
EPA or "any person" has a prima facie case for an injunction. Without 
permits, enforcement involves a lengthier procedure requiring inves- 
tigation, compilation of raw data, and time-consuming administrative and 
judicial procedures. Moreover, such procedures involve fortuitous en- 
forcement, unnecessary delays, with all burdens of proof on the enforcer, 
not the polluter. 

These arguments, buttressed by the fact that permit systems have 
been implemented by Congress in the ocean dumping and water area and 
by most states in controlling stationary sources of air pollution, raise the 
question of whether it is worthwhile to develop permit requirements for 



ENVIRONMENTAL QUALITY STANDARDS 305 

federal facilities to ensure compliance with air, solid waste and noise 
control standards as well. 

The answer depends in part on the technical problems which arise in 
measuring and predicting accurately the quality and quantity of pollut- 
ants that will be emitted by a given facility. The technologies needed to 
establish standards upon which a permit system can be based have 
progressed further in some areas than in others. The state of the art in 
water quality management appears to be up to the task. Ocean dumping 
offers no serious problems; when dealing with stationary sources of air 
pollution, there is a consensus in EPA and many state agencies that 
permits are practicable. Solid waste disposal is similar to ocean dumping 
and is already regulated in part by air quality requirements affecting 
incinerators; it is susceptible to measurement and prediction. 

In short, a permit system would seem to be a substantial improvement 
to the regulation of nearly all aspects of federal facility pollution. Noise 
control is the only program for which the state of the art may not be 
sufficiently advanced to enable at least the use of permits, at least for the 
present. However, the regulation of the sale of new products that cause 
noise pollution is promising. On balance, it seems fair to assume that noise 
is technically no less susceptible to a permit system than air quality. 
Consequently, the use of permits should be kept in mind as experience is 
developed in the control of this area of environmental concern. In any 
event, this analysis concludes that programs should be established lead- 
ing to permit systems to control air pollution, solid waste disposal, and 
perhaps noise pollution, contingent upon the technological ability to do 
so. 

C. Resolution of the Intergovernmental and Constitutional 
Conflicts 

The present system for ensuring federal facility compliance with en- 
vironmental quality standards has created a strain on daily inter- 
governmental relations as well as judicial disagreement over issues of 
statutory interpretation and the constitutional rights of the states. 

The cases referred to in this article are the tip of an iceberg of cool 
intergovernmental relations. The exasperation of state officials is 
reflected in the following conversation: 

Q: How does your state office deal with the environmental problems caused by federal 

facilities? 

A: We throw up our hands.*' 

In Puget Sound (State of Washington), the director of the local air 
pollution control agency is notorious for filing suits against federal 



" Conversation with the Compliance Counsel for the New York State Department of Environmental Conservation. 



306 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

facilities, despite repeated dismissals.®^ But the real antagonism is best 
revealed by conversations with state and local officials. The Attorney 
General's office in Tennessee is anxious to bring several actions, but may 
not for lack of sufficient staff and financial resources. Some state officials 
are not so ardently opposed to the existing federal procedures, but these 
officials often represent states with few federal facilities. For example, 
one Georgia State Health Department official indicated satisfaction with 
federal facility compliance with air and water quality standards. He 
conceded, however, that his state had few problems due to its smaller 
number of federal facilities. 

To be sure, the primary causes of dissatisfaction are the instances of 
non-compliance that state and local officials observe. But substantial 
friction is also caused by the confused enforcement procedure. In New 
York, for example, for a time state officials requesting permission to 
make an environmental inspection were denied admission to an army 
base. Only after referral to several levels of different state and federal 
agencies was their inspection allowed. Consequently, state officials now 
refer problems to the EPA regional office on a regular basis, but have no 
certainty as to the result. Tennessee state health officials had less knowl- 
edge or faith in procedures of the regional EPA staff. California and 
Washington were so unhappy with the federal procedures that they 
brought suit in the United States Court of Appeals and won complete 
authority over the water discharge permit system for federal facilities.®^ 
This dissatisfaction over the present set of federal enforcement pro- 
cedures should be resolved, if possible. 

One effort at resolution has been litigation. As noted above, a few 
significant cases have either been decided or are on appeal.®'* The results 
of the court decisions are not in harmony. In general they address the 
question of whether non-federal permits can be imposed on federal 
facilities. This issue involves both constitutional law and statutory in- 
terpretation. 

The principal questions of constitutional law concern the Supremacy 
Clause and the doctrine of sovereign immunity. The Supremacy Clause 
was carefully analyzed by Chief Justice Marshall over 155 years ago. In 
that classic case over the states' authority to tax the National Bank, he 
summed up the issue neatly: 

First, that a power to create implies a power to preserve. Second, that a power to 
destroy, if wielded by a different hand, is hostile to, and incompatible with, these 
powers to create and to preserve. Third, that where this repugnancy exists, that 
authority which is supreme must control, not yield to that over which it is supreme. ^^ 



"E.g., Puget Sound APCA v. USVA Hospital, 4 ELR 20010 (W.D. Wash. 1973). 

^ California v. EPA, supra n. 29. 

^ E.g., Kentucky V. Ruekelshaus,sMpran. 31; Alabama v. Seeber, swpra n. 34; and California v. EPA,s]<pran. 29. 

« McCullough V. Maryland, 17 U.S. (Wheat) 316, 4 L.Ed. 579 (1819). 



ENVIRONMENTAL QUALITY STANDARDS 307 

This principle is alive and well today. Circuit Judge Lively relied 
explicitly on this rationale and the Supremacy Clause in the Sixth Circuit 
decision to exempt the Tennessee Valley Authority (a congressional 
creation comparable to the National Bank of Marshall's time) from the 
permit requirements of the State of Kentucky. ^^ In fact, the Supremacy 
Clause was also considered a major hurdle in the Fifth and Ninth Circuit 
cases on the same issue.®' That hurdle was surmounted in these latter 
two decisions, but not in the Kentucky case. 

The rationale for evading the Supremacy Clause is straightforward, as 
indicated by the California decision which invokes a line of Supreme 
Court cases holding that Congress may waive exclusive legislative 
jurisdiction over federal facilities so long as that waiver is explicit and not 
overly broad.®® The court went on to conclude that §313 of FWPCA was 
an explicit and not overly broad waiver. Therefore the Supremacy Clause 
was not a bar to the state's program. The Sixth Circuit reached an 
opposite conclusion with respect to §118 of the Clean Air Act, which has 
virtually the identical language as §313 of FWPCA. 

In the absence of a clear congressional purpose to subject federal agencies to state 
regulation, the district court was prevented by the Supremacy Clause from granting 
the injunctive relief sought by the plaintiff. ^^ 

The Fifth Circuit, also confronted with §118 of the Air Act, held 
contrary to the Sixth Circuit, simply noting its disagreement with the 
Sixth Circuit: 

It is on the proper interpretation of §118 that we part company with the Sixth 

Circuit. 90 

Thus, for the present, two circuits are split over the supremacy issue with 
respect to the Clean Air Act, and a third circuit leans in favor of the 
conclusion that an explicit waiver exists, given its view of §313 of 
FWPCA. All these cases are presently before the Supreme Court. ^^ 

A second constitutional objection to the authority of the states to 
impose enforcement procedures on federal facilities arises from the 
doctrine of sovereign immunity. This venerable defense has come under 
increasing attack recently. ^^ Nonetheless, it still has some vitality in the 
courts, and the Sixth Circuit relied explicitly on this doctrine in the 
Kentucky decision. ^^ Again its conclusion was not followed in the Fifth 
Circuit, which held: 



»« Kentucky v. Ruckelshaus, aupra n. 31 at 1175, 4 ELR 20486. 

" Alabama v. Seeber, supra n. 34 at 1247, 4 ELR 20797; California v. EPA, supra n. 29 at 967, 5 ELR 20214. 

"* The court cited several cases. Primarily relying on Larson v. Domestic and Foreign Commerce Corp., 337 U.S. 682 
(1949); see also Paul v. United States, 371 U.S. 245 (1963); United States v. Sharpnack, 355 U.S. 286 (1958). 

•» Kentucky v. Ruckelshaus, supra n. 31 at 1176, 4 ELR 20486. 

»» Alabama v. Seeber, supra n. 34 at 1247, 4 ELR 20797. 

*' Kentucky v. Ruckelshaus, sub. nom.; Kentucky v. Train, No. 74-220 (cert.grayited 43 U.S. L. W. 3499); California 
V. EPA, No. 74-1435 {cert, granted 43 U.S.L.W. 3674); Alabama v. Seeber, No. 74-851. 

"^ The Administrative Conference, among others, has recommended its abolition. ACUS Recommendation No. 
69-l:Statutory Reform of the Sovereign Immunity Doctrine. See also S-800 (94th Cong., 1st Sess.). 

"'Kentucky v. Ruckelshaus, supra n. 31 at 1175-1176, 4 ELR 20486. Citing Lorson, swpro n. 88, and Land v. Dollar, 
330 U.S. 731, 738 (1947). 



308 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Our determination of the meaning of §118 also forecloses this contention. . . . Little or 
no inference is required to conclude that §118 embodies a waiver of sovereign im- 
munity.^'' 

Other lower court opinions have wrestled with this question and reached 
inconsistent results. The United States District Court of Washington 
concluded that §118 was an inadequate waiver of sovereign immunity. ^^ 
It then considered whether §304 of the same Act was sufficient. It held 
that §304 "is merely a clause preserving any previously existing statutory 
authority or common law rights, and therefore does not support the 
bringing of an action for an injunction against the U.S. or Federal 
facilities." The United States District Court in Alaska ruled to the 
contrary, concluding that §304 was a waiver of sovereign immunity, but 
for civil actions only.^^ The United States Eastern District Court of 
Wisconsin has also held §118 was a waiver of sovereign immunity. ^"^ 
These and other cases on point in the water quality area reveal substan- 
tial confusion. ^^ It is doubtful that all of this confusion will be dispelled 
satisfactorily by the Supreme Court's review of the Kentucky decision 
concerning §118 of the Clean Air Act. Moreover, the issues are hkely to 
arise anew as state and local officials implement the Federal Noise Con- 
trol Act and their various state and local noise control regulations against 
federal facilities.^® 

Clearly, an alternative set of enforcement procedures is needed, both 
to eliminate a prevalent mood of discontent and to resolve a variety of 
inconsistent court opinions. One such alternative is for Congress to 
delegate express authority to a single federal agency (EPA) to establish 
enforcement procedures (preferably permits) which ensure federal 
facilities comply with state and local environmental quality standards. A 
statutory delegation of such authority would dissolve the question of 
federal supremacy and sovereign immunity. If federal permits were 
issued pursuant to state and local substantive standards for environ- 
mental quality, then most of the objections by state and local officials 
would be resolved, as well. In fact, as mentioned above, many state 
officials would welcome the removal from their shoulders of the burden of 
enforcing environmental quality standards against federal faciUties. 
State and local officials repeatedly indicated in interviews with the author 
their wilhngness to transfer federal facility enforcement problems to an 
effective federal level enforcement program. 

Several considerations support this suggestion for a federal en- 
forcement program. Perhaps foremost among these is the notion that the 



" Alabama v. Seeber, supra n. 34 at 1248, 4 ELR 20797. 
" Puget Sound APCA v. USVA Hospital, supra n. 82. 
** Greater Anchorage v. Johnson, supra n. 77. 

" Milwaukee County v. VA Center, 357 F. Supp. 192 (E.D. Wis. 1973). 
'* California v. Davidson, supra n. 75; California v. Stastny, ^pra n. 34. 

»» E.g., Air Transport Assn. v. Crotti, supra n. 52, and City of Burbank v. Lockheed Air Terminal, 411 U.S. 624, 3 
ELR 20393 (1973). 



ENVIRONMENTAL QUALITY STANDARDS 309 

federal government should tend its own fences. Why must an en- 
vu-onmental program Congress has applied to federal facilities rely on 
state and local officials, plus interested citizens, to ensure compHance? 
Common sense in public administration suggests that the "front line" of 
enforcement be maintained by the level of government posing the prob- 
lem. 0MB Circular A-106 already imposes the responsibilities on federal 
agencies to assess problems, develop plans and budgets, and implement 
improvements. Sound management suggests that same level of gov- 
ernment should investigate and enforce compliance as necessary. Should 
the federal government fail to police effectively its own facilities, there 
exists in four of these statutes a citizen suit provision which provides a 
"second Une" of enforcement by non-federal officials or interested citi- 
zens. These citizen suit provisions are valuable for plugging holes that 
develop in a federal enforcement program, but they should not be relied 
upon as a primary source of surveillance and enforcement. 

From an efficiency viewpoint the idea is also extremely attractive. It 
would relieve agencies with facilities nationwide from the multiplicity of 
compliance with forms and procedures created by each of 50 states, plus 
numerous local agencies. It would be a relatively simple matter to im- 
plement new enforcement procedures at EPA, given the existence and 
experience of (1) the Office of Federal Activities in receiving and review- 
ing budget requests from the agencies faced with needs for pollution 
control equipment pursuant to 0MB Circular A-106, and (2) the ongoing 
issuance to federal agencies of NPDES and ocean dumping permits. 

Adoption of this suggestion could alleviate some of the internal conflict 
at EPA concerning whether to use its authority to initiate suits against 
recalcitrant sister agencies; EPA would have a more amenable option. If 
it chose not to issue a permit due to excessive pollutant emissions or if it 
found a compliance schedule being violated, mere public notice of that fact 
would allow any non-federal official or citizen to commence a citizen suit 
with a prima facie case already provided. EPA need not engage in inter- 
necine legal warfare directly with sister agencies. 

One major objection to such a proposal is perhaps overrated. It has 
been suggested on numerous occasions that federal agencies might 
vehemently oppose the delegation of authority to a single agency to issue 
or withhold vital permits for other federal agencies. The accretion of 
authority by one agency over the otherwise independent authority of 
other agencies is always a delicate concern. ^°" That concern is magnified 
in direct proportion to the size and strength of the agencies involved. 



"" The Civil Service Commission does possess authority over the personnel policies and actions of sister agencies. 
Similarly, the General Services Administration exercises certain control over the physical space and facilities of most 
agencies. Of course, the Office of Management and Budget exerts strong influence and some direct authority over agencies 
within the Executive Branch due to its supervisory role within the Executive Office. The Department of Justice also exerts 
some control over agency matters through its role as representative in most agencies' litigation and through its role as 
legal counsel to other agencies. 



310 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Here, we propose additional authority to EPA with a potential loss of 
flexibility at major departments that own or operate federal facilities 
{e.g., Defense, Interior, HEW, Agriculture, Commerce). Several large 
administrations also have a vital concern {e.g., VA, NASA, GSA). It is 
easy to anticipate major objections from these powerful executive branch 
members. 

A few objections have already been voiced to EPA's growing authority 
and increased imposition of requirements on sister agencies. For exam- 
ple, the Tennessee Valley Authority has been quite vocal in its opposition 
to the air quality standards EPA proposed for State Implementation 
Plans. But the fact remains, most agencies have not raised major ob- 
jections. In fact, the responses from agencies asked to comment on an 
earlier draft of this article revealed nearly unanimous willingness to 
accept the proposition of a single federal agency with the authority to 
enforce environmental quality standards. ^*^^ With respect to the pro- 
cedural requirements already imposed by EPA under the ocean dumping 
program, no formal opposition has arisen. No agency has yet challenged 
the permits issued. And there has been but one instance (in Region IV) 
where a federal agency opposed EPA issuance of water discharge 
permits. That opposition was quickly resolved. The agencies seem 
genuinely to favor a single enforcement agency at the federal level rather 
than a myriad of state and local enforcement program requirements. 

D. Procedural Improvements in a Permit System 

Under the present enforcement procedures to ensure federal facility 
compliance with environmental quality standards, problems exist with 
respect to public notice, opportunity for hearings and the role of the 
presiding officer at any hearings held. If EPA is to be given broader 
authority to issue permits, the difficulties in existing procedures should 
be resolved first. 

1. Public Notice 

The clearest illustration of the problems of adequate public notice may 
be found in the new EPA guidelines to ensure federal facility compliance 
with air quality standards. According to EPA, its regional staff are 
expected to negotiate a consent agreement with the recalcitrant federal 
facility without any public notice. In fact, except for the state agency with 
jurisdiction over the facility's pollution problems, no one is informed of 
what becomes a closed-door session to draft the consent agreement. Only 
upon completion of the agreement, for which state certification is not 



'"• See comments from the Department of Defense, Agriculture, Interior, et al. in files of the Administrative 
Conference. Also, note well that the Administrative Conference adopted Recommendation 75-4, particularly §1. (Appen- 
dix A). 



ENVIRONMENTAL QUALITY STANDARDS 311 

required, is any notice provided to the public. The EPA memorandum 
proposes that the completed agreement be published only in the Federal 
Register; no local publication is proposed. 

It is interesting to compare this closed-door strategy with the ex- 
perimental technique upon which it was based. EPA's Region III had 
explored the use of consent agreements for some time prior to agency- 
wide adoption of the policy. However, on those occasions which the EPA 
regional staff felt that negotiations would benefit from public in- 
volvement, local agencies and members of the interested public were 
invited to participate. Even that Umited option for public involvement is 
now precluded. 

It is noteworthy that the procedures required by Congress for issuing 
permits for ocean dumping and water discharges already provide public 
notice requirements for the application and issuance of permits. ^^^ Ap- 
plications for permits are published in local newspapers and posted 
throughout the geographic area concerned, and mailed to any interested 
person, group or agency, whether they request specific notice of one 
permit or have filed a standing request. The thrust of these requirements 
is clear; to apprise the permit issuer of the views of any and all persons 
concerned and to provide the public with knowledge about the permit 
requirement and individual applicants. This approach recognizes that the 
pubhc interest is best served when public business is done in the open. 

It may be that negotiation of air quality consent agreements between 
state officials and private enterprise requires some degree of privacy. 
However, when dealing with federal facilities and federal agencies the 
clear trend is towards public notice, open meetings, and public disclosure 
of decision-making rationale. ^^^ Where agency proceedings are carried 
on pursuant to the Administrative Procedure Act's requirements for 
rulemaking and adjudication, broadened opportunity for public par- 
ticipation has been recommended. ^°'* 

2. Hearings 

A second problem in the existing permit procedures concerns the type 
of hearings that should be provided for applicant and public review of the 
permits issued. The ocean dumping permit procedures provide for an 
informal "public hearing." The water discharge permit procedures pro- 
vide an option for both a public hearing (a little different from the public 
hearing in the ocean dumping program) and an "adjudicatory hearing." 



">« 40 C.F.R. 222.3, 40 C.F.R. 125.32, respectively. 

"" See, e.g., the Federal Advisory Committee Act, 5 U.S.C. App. I (Supp. II, 1972), and the Freedom of Information 
Act Amendments of 1974, P.L. 93-502, to be codified at 5 U.S.C. S552. 

">* See Administrative Conference Recommendation No. 71-6; Public Participation in Administrative Hearings with 
its underlying reports by Professor Ernest Gellhom and then-Chairman Roger Cramton. Volume 2 ACUS Reports & 
Recommendations at 35, 376, and 422, respectively (1972). 



312 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

Under the air quality compliance guidelines, as presently proposed by 
EPA, no hearings are provided for review of the consent agreement; both 
parties, EPA and the agency concerned, must agree, and the public has 
no opportunity for input or review. These variations raise questions 
needing analysis. Why are the procedures so different? Is one procedure 
preferable? 

Generally, as argued above, the interested public has a valuable role to 
play in the permit evaluation process, and EPA would benefit by provid- 
ing a structured forum in which to play it. Public hearings are one such 
forum, though many enforcement officials feel that environmental issues 
are far less popular than when they were more novel (circa 1969-72), 
Public hearings allow interested memoers of the public to submit data 
and views, not to mention venting their ire. In addition, with respect to 
non-complying federal facilities, the suggestion by enforcement officials 
that public hearings might be held strikes a responsive chord in the hearts 
of facility operators, administrators who must continue to administer a 
facility within the community which is invited to speak out at a public 
hearing. Awareness that there may be a public hearing on the permit at 
issue is a catalyst which encourages realistic cooperation by facility 
operators and their agency owners, who seldom wish to brave the ad- 
verse local publicity a public hearing can generate. Thus, even the po- 
tential of public hearings has a salutory impact. Hearings should be 
provided as an option within the procedure used to ensure federal 
facilities comply with environmental quality standards. 

A tougher question is whether to provide, in addition to a public 
hearing, an adjudicatory hearing at the permit issuance stage similar to 
that provided for in the Administrative Procedure Act (APA).^^^ The 
water permit system procedures now provide the option for an "ad- 
judicatory hearing" similar to the APA hearing.'"^ Such hearings are not 
specifically required by statute in other areas, but the developing case 
law, which requires a record for judicial review, may mandate their 
availability. ^°'^ These hearings provide the applicant for a water dis- 
charge permit a formal review of any denial or imposition of a condition to 
which he objects. 

The hearings were designed primarily to provide due process for 
private enterprise. Yet, for several reasons many private enterprise 
permit applicants are irate. This antipathy by the intended beneficiaries 
is worth considering. In essence, their opposition is based on the exten- 
sive cost and time involved in the hearings which, in their view, are 
merely a kangaroo court. ^°® The presiding officer has no authority to 



'« 5 U.S.C. !(S554 et seq. (1970). 
'»«40C.F.R. 125.36. 

">' Consider Wong Yang Sung v. McGrath, 339 U.S. 33 (1951), cited and discussed in Memorandum for General 
Counsel of EPA and General Counsel of CSC, from the Office of Legal Counsel, Dept. of Justice (June 5, 1973). 
><" Expressed at ABA/EPA workshop or the >fPDES Hearings, Aug. 19, 1974. 



ENVIRONMENTAL QUALITY STANDARDS 313 

determine issues of law. He makes no initial decision. He merely collects a 
record for review by the Regional Administrator of EPA. But the Re- 
gional Administrator, who frequently has already had some involvement 
with the initial permit proposal approved by his subordinate, is unlikely 
to be persuaded, without more, to reverse his decision or that of his 
subordinate. And the mere collection of a record of evidence without a 
conclusion is not likely to be very persuasive. Consequently, many appli- 
cants undertake the procedure only after deciding they need to pursue a 
total review to the level of the Administrator of EPA and, perhaps, then 
to the courts. 

Given the dissatisfaction voiced by private applicants, some overriding 
benefit must be identified before such a system is promoted for federal 
facilities for which due process is not required. If a federal agency head is 
dissatisfied with a permit denial or condition, he can always seek review 
within the Executive Branch directly, by seeing the Administrator of 
EPA or the President, if the facility is that important. In fact. Congress 
authorized an exemption in each federal facility section whenever the 
President determines "the paramount interest of the United States" 
requires one.^^^ If on the other hand, interested members of the public 
are concerned over a proposed permit, they may seek a public hearing. If 
still dissatisfied with the permit, they have the option of pursuing the 
citizen suit provisions found in most acts. In conclusion, "adjudicatory 
hearings" for permits to federal facilities are not likely to be worth the 
effort. They are costly and provide too little in return. 

Thus, it seems that public hearings are worthwhile, but adjudicatory 
hearings are not. It is interesting to note that the existing procedures for 
ocean dumping permits provide just that — public hearings but not 
"adjudicatory hearings," and that these same procedures were com- 
mended supra for their beneficial public notice requirements. 

3. Recommendations by the Presiding Officer 

Questioning the role to be played by a presiding officer of a hearing in a 
permit procedure may seem, at first, an odd concern. However, in the 
turmoil over the water discharge permit hearings, that issue has been 
central. It is also an issue of growing concern in other areas. ^ ^° At present 
the presiding officer is not required to be an administrative law judge 
(ALJ) ^^^ in either the public hearings or "adjudicatory hearings." In 
public hearings the presiding officer is generally an attorney or a bureau 
chief from the EPA regional office. For "adjudicatory hearings" EPA has 
recognized the need for a presiding officer with more independence from 



'«• E.g., §118 of the Clean Air Act, 42 U.S.C. §1857f. 

""See Rosenblum, Role of the Administrative Law Judge in the Administrative Process, Sept. 1975, A Report 
Prepared for the Administrative Conference of the United States. 

'" See §11 of the Administrative Procedure Act, codified at 5 U.S.C. §§1305, 5362, and 7521. 



314 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

the permit issuing staff and therefore has assigned only administrative 
law judges to be presiding officers. Their role is to conduct an orderly 
hearing and to collect evidence and testimony. Although, normally, ad- 
ministrative law judges also make recommendations for resolving the 
disputes before them to the agency officials, the water permit procedures 
do not authorize the presiding officer of an "adjudicatory hearing" to 
provide any recommendation. Instead, the presiding officer performs 
virtually all the duties required in APA hearings, yet his final act is 
merely to transmit a certified record and any proposed conclusions or 
findings of the parties, without his own views and opinions. He is not 
asked to provide his own recommendation. 

The role taken by presiding officers in ocean dumping public hearings is 
eminently more sound. The presiding officer over a public hearing under 
these regulations is directed to recommend approval, disapproval or 
specific conditions for the permit. The presiding officer hears and consid- 
ers all the evidence and may judge the demeanor of each witness. Al- 
though an agency official, less independent than an ALJ, he operates in a 
position of neutrality. Because he is selected by the Regional Adminis- 
trator due to his sound judgment and experience, it seems utterly foolish 
not to request his recommendations on the matters addressed at the 
hearing. This is true whether he presides over an "adjudicatory hearing" 
or a public hearing. The one possible concern could be that his recom- 
mendation, once made public, would make it difficult for the Regional 
Administrator to act to the contrary. This objection has no merit. If the 
Regional Administrator is unable to give a persuasive justification for a 
contrary decision, then he should accept the advice of the presiding 
officer, whose viewpoint is too valuable to be ignored for petty reasons. 

The foregoing analysis leads to the conclusion that the present pro- 
cedures of the ocean dumping permit system should be extended to other 
EPA procedures to ensure compliance by federal facilities with en- 
vironmental quality standards by incorporating the ocean dumping 
requirements for (1) adequate, local public notice, (2) opportunity for a 
public hearing, and (3) recommendations from the presiding officer. 

IV. Summary and Conclusions 

The present statutory framework for addressing the problems of fed- 
eral facility compliance with environmental quality standards is consist- 
ent for three significant environmental areas: air, water, and noise. In 
each case, the law requires federal facilities to comply with "Federal, 
State, interstate and local requirements respecting control and abate- 
ment of . . . pollution. ..." This statutory requirement is designed to 
ensure that federal facilities are subject to pollution control programs at 
all levels of government "to the same extent that any person is subject to 
such requirements." This requirement makes sense. Each of these en- 



ENVIRONMENTAL QUALITY STANDARDS 315 

vironmental concerns has been and still is primarily within the province of 
non-federal levels of government. Despite the increased involvement by 
Congress and the federal government, environmental protection remains 
primarily a local responsibility. The principle that federally owned or 
operated facilities should meet, respect, and comply with the local stand- 
ards merits continuation. 

One area, solid waste disposal, has not been incorporated within this 
statutory framework. Although solid waste disposal programs are less 
developed than air and water programs, it is clear that state and local 
standards should predominate in this field as in the others. Consequently, 
the principle in the air, water, and noise acts that federal facilities shall 
comply with state and local environmental control standards should be 
added by amendment to the Solid Waste Disposal Act. 

The consistency obtained by this amendment should be further im- 
proved with respect to the enforcement procedures employed to ensure 
that federal facilities comply with the state and local environmental 
quality standards. At present each program, air, water, noise, solid 
waste disposal and ocean dumping, uses a unique set of procedures. The 
water quality act created a system which requires a permit for each 
discharger of pollutants into our nation's waters. Each state is encour- 
aged under the Act to establish and implement such a permit program. 
Whether these state programs are authorized to require permits of 
federal facilities within their jurisdiction has not yet been resolved in the 
courts. Under the Clean Air Act, each state has set up its own en- 
forcement procedures. One half of the state programs require permits for 
each stationary source of air pollution. The others rely on inspections, 
followed by administrative orders to abate any violation that is found. 
With respect to federal facilities, again the authority of the states is 
uncertain. One court of appeals held the State of Alabama may require 
permits of resident federal facilities. Another court of appeals held to the 
contrary for the State of Kentucky. A third has not yet decided a similar 
case pending before it. The two cases decided are being appealed to the 
Supreme Court. EPA has already developed its own unique compliance 
procedure which it would continue to use if the states are denied on appeal 
the authority to require permits from federal facilities. This procedure 
calls for inspection and monitoring of federal facilities for non-compliance. 
In those instances where a violation is occurring, the regional offices are 
directed to negotiate a "consent agreement" with the non-complying 
facihty. Under the Noise Control Act, there is no enforcement program 
at the federal level and a variety of different state and local programs. 
Their authority over federal facilities is untested at present and therefore 
uncertain. Under the SoUd Waste Disposal Act, EPA Guidelines have 
been issued for the use of all federal facilities. Since there is no statutory 
requirement that imposes state or local standards on federal facilities, 



316 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

these EPA Guidelines are the only requirements such facilities must 
meet. Unfortunately the Guidelines themselves admittedly fail to meet 
minimum standards in some states and localities and in addition no 
enforcement procedures exist to ensure that they are complied with. 

These inconsistent and uncertain enforcement procedures have not 
proven satisfactory. Nor is there hope for an adequate resolution of the 
issues, without congressional action. Ocean dumping is a notable ex- 
ception. When this pollution problem rose to a level of national concern, 
the Congress delegated nearly full authority to a single federal agency, 
EPA. The result is a permit program under which any person, including 
federal agency officials, who wishes to dump waste materials into the 
ocean must secure a permit from EPA. This system has proved effective 
and produced none of the legal uncertainty and intergovernmental con- 
flict that arose with respect to the other environmental areas. 

In hght of the apparent success in the water discharge and ocean 
dumping permit programs, Congress should consider delegating express 
authority to EPA to establish and maintain enforcement procedures 
which will ensure federal facilities meet state and local environmental 
quality standards in each major program, including air, water, noise and 
solid waste. 

Lastly, this examination has noted the inconsistent use within the 
present enforcement procedures of three sound administrative re- 
quirements: 1) adequate local notice, 2) an opportunity for a public 
hearing, and 3) recommendations from presiding officers at any hearings 
employed within the enforcement procedures. These elements exist and 
function well in the ocean dumping and the water discharge permit 
programs. They should be incorporated in the enforcement procedures 
developed for air, noise and sohd waste disposal programs. 



Summary of Report in Support 

OF Recommendations 75-5—75-10 

Administrative Procedures of the Internal Revenue 

Service* 

CHAPTER 1 — THE AUDIT AND SETTLEMENT PROCESSES 

Selection of Returns for Examination 

Congress has directed the Internal Revenue Service "to the extent . . . 
practicable ... to proceed, from time to time, through each internal 
revenue district and inquire after ... all persons . . . who may be liable to 
pay any. . .tax.. . ."The Service is further empowered to review books 
and records relating to tax returns. For the individual income tax, the 
Service has heeded the Congressional direction by each year examining 
some taxpayers' returns for accuracy and demanding substantiation of 
the entries on the return. Such examinations are called audits. 

The Service does not have enough people to audit each of the 80 miUion 
individual income tax returns filed each year. Instead only a small per- 
centage is examined. Such audits increase revenue, and also have a major 
purpose to induce "voluntary compliance" with the tax laws. The pro- 
gram of examinations to achieve this end appears to be based on the 
assumption that the public will be encouraged to comply if there is a 
credible possibility that any particular return may be audited. 

To carry out these audits, the Internal Revenue Service has separated 
individual tax returns into seven classes, based on the level and kinds of 
income shown on the return. These classes are: 

Level of Adjusted Gross Income Return Class Designation 

and Other Characteristics 



$0-$10,000 with only a standard deduction Low income standard 

$0-$10,000 without business income but Low income non-business itemized 

with itemized deductions 

$10,000-$50,000 without business income Middle income non-business 

(usually with itemized deductions) 

Over $50,000 without business income High income non-business 

$0-$10,000 with business income Low income business 

$10,000-$30,000 with business income Middle income business 

Over $30,000 with business income High income business 

If any amount of business income is reported, the return is classified as a 



•This Report was prepared by the Chairman's Office for circulation to the members of the Conference in connection 
with Plenary Session consideration of the five Internal Revenue Service Procedures recommendations. It is intended as 
an accurate summary of Davenport, Administrative Procedures of the Internal Revenue Service, Sen. Doc. 94-266 
(1975) which was prepared under the auspices of the Steering Committee for the Internal Revenue Service Project. A 
memorandum by Sheldon S. Cohen, Chairman of the Steering Committee in support of an amendment to Recommendation 
75-8 "Tax Return Confidentiality" is also included. 

317 



318 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

business return. A return with no business income but with very high 
amounts of investment income, such as dividends and interest, will be 
classified as a non-business return. 

A projection of returns to be audited from each of these classes is 
determined at the beginning of each fiscal year and is communicated to 
Service personnel as the Annual Audit Plan. "The Plan" is a management 
projection developed by the national office with substantial assistance 
from management personnel at the district and regional offices. It 
unquestionably is management's most important tool for planning and 
monitoring the Service's audit activities, and its impact on the auditing 
process itself is substantial. Accomplishments toward fulfilling the pro- 
jected goals are collected monthly, quarterly, and annually, and are tabu- 
lated by district. District management personnel use such statistics in 
monitoring the district's success in meeting its assigned objectives, and a 
desire to "make the plan" is naturally transmitted to and felt by those who 
do the auditing. What results is a sometimes subtle pressure on the 
examining officer to increase his productivity as measured by number of 
audits completed. 

The selection of returns for examination begins at the ten IRS Service 
Centers, where returns are received from the taxpayer and reviewed 
manually and by machine, for math errors and obvious other errors 
apparent on the return. If errors (either in favor of or against the 
taxpayer) are detected, the taxpayer is notified by the Service Center, 
and the issues so raised are resolved with its personnel if possible. If not, 
the return may be audited. 

The computer at the Service Center also gives every return a score for 
the tax change that might result from an audit of the return. A high score 
means there is a correspondingly high probability that an audit would 
result in either a significant increase or decrease of the tax liability shown 
on the return ("tax change"). The formula upon which such scoring is 
based is developed from the results of an intensive survey of sample tax 
returns known as the Taxpayer CompUance Measurement Program 
(TCMP). 

This program, conducted in periodic cycles, consists of auditing a 
random sample of all returns filed in a particular year. From this sample, 
characteristics of returns which have significant tax changes are iden- 
tified. These characteristics are then built into a formula called the 
Discriminant Function (DIF) which gives each characteristic and combi- 
nations of characteristics on a return a weight related to the amount of tax 
change found on the sample returns with similar characteristics. The 
total weight constitutes the DIF score, which purports to indicate the 
probability of a tax change if the return were audited. 

In numerical terms, TCMP examinations are relatively insignificant. 
About 30,000 returns were examined under this program in the last cycle 



INTERNAL REVENUE PROCEDURES 319 

covering tax year 1971, a small number when compared to the more than 
1.6 million taxpayers who were audited under other programs. However, 
TCMP examinations are exceedingly important to the Service, because 
they produce the data base from which the DIF formulas, used to select 
the ordinary tax return for audit, are developed. 

Accordingly, to assure the highest degree of accuracy, examiners in 
TCMP audits are instructed to question every entry on the return and to 
pursue verification and documentation of each entry, until in the 
examiner's professional judgment it is accurate. These standards of ex- 
amination are more stringent than are standards for other audits. TCMP 
examinations consume much more time than routine audits and put 
taxpayers to more inconvenience in supplying verification. As a result 
this audit, done primarily for research purposes, imposes considerable 
costs in time, money, and frustration on the taxpayer. Furthermore, 
since the sample is purely a random one, not geared to the potentiality of 
error, the cost of improving the audit system as a whole is largely borne 
by those unfortunate and presumably faultless taxpayers who are se- 
lected for intensive audit under the TCMP. 

Thus, this program, though clearly a valuable one, can be a source of 
annoyance and irritation for taxpayers who fall into it. While the Service 
has generally assigned examiners of above average capabilities to con- 
duct these audits, such audits might be further expedited and made less 
inconvenient to taxpayers if only the most skilled and experienced exam- 
iners were assigned to them. For this reason, it is recommended that 
the Service establish units of especially skilled examiners to perform 
TCMP examinations. 

The DIF formulas developed from TCMP audits are appHed to each 
return. The returns with the highest scores for each class of returns are 
held at the Service Center for delivery to district offices when returns are 
needed for audit. In the past few years about 60 percent of all returns 
examined were put into the audit pool by reason of computerized DIF 
scoring. 

The remaining 40 percent enter the audit pool by manual selection 
under a number of general programs and other criteria. The programs 
are established by management in the national, regional, or district 
offices, and are based on return characteristics which are believed to 
indicate a high likelihood of noncompliance. 

While some audits are performed by Service Centers, through corre- 
spondence, the majority are performed by one of the district offices, or 
their branches, scattered throughout the country. When a district office 
needs returns to audit, it will order returns fi'om the Service Center 
servicing that particular office. Need is largely determined by the num- 
ber and type of returns necessary to assure the accompUshment of the 
objectives prescribed by the Annual Audit Plan. The Service Center 



320 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

sends those returns having the program characteristics specified by the 
district as necessary for fulfillment of its assigned role in the Annual 
Audit Plan. Because of the need for further manual screening of returns 
sent to the district from the audit pool, the number ordered and received 
by the district is always greater than the number required for auditing 
under the Plan. The further screening to determine which returns are 
most suited for audit is manually done by the district's Returns Program 
Manager (RPM) and his staff. As a result of this review, some returns are 
judged not to require audit and are returned to the Service Center. When 
it has been decided that a particular return wUl be retained for further 
examination, a classification specialist determines whether its complex- 
ity warrants a field audit, by a highly skilled Revenue Agent, or only an 
office audit, to be performed by a less experienced Tax Auditor, who 
normally is provided a checklist of issues which he rarely goes beyond. 

Once so classified, the return will be forwarded to the personnel who 
supervise the examining officers. These individuals are known as Group 
Managers. A Group Manager will screen each return he receives to 
determine whether he agrees with the RPM that the return is worthy of 
audit. If he does not, he will return it to the RPM who will then return it to 
the Service Center unaudited. If the Group Manager determines that a 
return should be audited, he will assign it to one of the examining officers 
on his staff who will then be responsible for conducting the audit of the 
return. This examiner may also independently review the return to 
ascertain whether it should be examined. 

The foregoing has described the fashion in which most returns are 
chosen for audit; that is, they are routinely forwarded in batches by the 
Service Center to the district office and ultimately assigned to an exam- 
iner. Because several persons along the way consider the suitability of 
each return for audit, there is only a slight possibility that such Service 
personnel might abuse their screening power and exercise it maliciously 
or capriciously. 

Other returns are individually selected for examination at the initiative 
of examiners in the district or branch offices. The examiner's discretion to 
requisition returns from the Service Center is relatively unchecked, and 
therefore presents a greater potential for abuse. For example, an exam- 
iner may, as a result of findings during an audit, decide that the return of 
another taxpayer should be examined. The Department of Justice may 
request that a particular return be examined. Or information suggesting 
that a taxpayer be audited may be sent to the Service from outside 
sources. In such cases, individual Service personnel exercise a high 
degree of discretion in deciding whether the individual returns should be 
examined. Indeed, the examiner may initiate the requisition entirely for 
reasons of his own. The examiner need only obtain his immediate 
supervisor's approval to request a return for audit. The reason for the 



INTERNAL REVENUE PROCEDURES 321 

request is indicated by a two-digit code. For example, if the requested 
return is said to be related to that of a taxpayer already under exami- 
nation, the request is known as a "related pick-up," and the correspond- 
ing code number is indicated. However, some code categories are 
extremely broad or vague. The examiner's discretion is further enhanced 
by the fact supervisors generally seem to consider approval a mere 
ministerial duty. There exists, then, the danger that a return may be 
requisitioned for examination by reason of the whim or malice of an 
examiner. A similar potential for abuse lies in the examining agent's 
power to earmark the return of a taxpayer he is currently auditing for 
audit in a future year. Again, approval is perfunctory, and no directives 
require the supervisor to scrutinize the request for necessity and 
propriety. 

There are several procedures that would discourage if not halt the 
misuse of such discretion. First, an examiner could be required to give a 
written explanation of his reason for requisitioning a return for audit. The 
Group Manager should review the written explanation to see that the 
request does not proceed from improper motives and is in accordance 
with established programs or criteria. Accordingly, it is recommended 
that each examining officer's requisition of a return be supported by 
written reasons, for review by his manager. 

Second, if the Service carried out a systematic, ongoing evaluation of 
the reasons assigned for the selection of returns for audit, improper 
return selection could be restricted. It is therefore recommended that 
the IRS develop procedures to permit such verification, in a fashion that 
will simplify review by the Service's Internal Audit Division and facilitate 
Congressional oversight of the audit selection process. One such pro- 
cedure was begun during the course of this study. 

Third, Service personnel would be further inhibited from improper 
return selection if they knew that the taxpayer would be told the reason 
his return was selected for audit. To aid examiners and minimize arbi- 
trariness, the Service should also require as far as possible that the 
selection of returns for the audit pool be made under programs and 
criteria established in advance. The Service would be more likely to 
establish such programs in advance if it is required to publish annual 
statistics showing the number of returns examined under each program 
or other criterion in each income class of returns. For these reasons, it is 
recommended that each taxpayer be notified of the reason that his 
return was selected for audit, that programs and criteria for selection be 
established in advance to the maximum extent feasible, and that the 
Service publish annual statistics pertinent to each of its selection pro- 
grams and criteria. 

Since many returns enter the audit pool by machine scoring and since 
many taxpayers have similar income and deduction patterns each year, 



322 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

the returns of some taxpayers get into the audit pool each year. They may 
sHp through the various screening steps notwithstanding the fact that 
previous years' audits have resulted in little, if any, change in tax liabili- 
ty. The taxpayer would, perhaps because of some recurring peculiarity in 
his tax return that causes a high DIF score, undergo audit very often or 
even for many consecutive years. Taxpayers naturally find such recur- 
ring audits annoying. The Service has little reason to audit any particular 
taxpayer on a repeating basis, especially where only minor tax change is 
likely to result. Procedures which permit a review of prior audit history 
could prevent these repetitive audits. Accordingly, it is recommended 
that procedures be adopted which would require review of audit history 
by the Group Manager and examining officer before conducting a re- 
petitive audit. TCMP audits should not be subject to such a review, 
however, since the failure to carry out a TCMP audit could impair the 
validity of the sample. 

The Exam^ination 

Correspondence audits aim to resolve the simplest of issues by mail 
from the Service Center. When the examination is performed in the 
district or branch, returns presenting relatively simple issues receive 
office audits, conducted in the Service's offices. The more complex re- 
turns undergo field audits, performed on the taxpayers' premises where 
records about business or investment transactions are accessible. 

The process of being audited is, for most taxpayers, a frightening and 
intimidating experience, occurring in a hostile and unfamiliar setting. It 
is largely the fear of the unknown that arouses such strong anxiety and, at 
some times, belligerence in the individual taxpayer who has been singled 
out for audit. 

Despite sincere efforts on the part of the Service to lessen these 
apprehensions, the confrontation between the tax auditor and the tax- 
payer remains essentially an adversary proceeding. Its adversary nature 
is heightened by the differing attitudes of examiner and taxpayer. The 
examiner tends to believe that tax returns in general contain many 
intentional or careless inaccuracies. As to the particular return before 
him, he knows that it was probably scientifically selected by a computer. 
He also knows that the return has been reviewed by the RPM and the 
examiner's own manager, who is cautioned not to assign the return for 
audit unless convinced it should be. In the back of the examiner's mind is 
the knowledge that his failure to find a tax change in a large number of 
returns may result in a review of his returns or a discussion of his skills, or 
both. It seems significant that examinations have long been referred to as 
"enforcement activity." (The 1974 Annual Report, issued as this study 
was nearing completion, used the word "compliance" in place of "en- 
forcement.") Thus, one may conclude that the average examiner comes to 



INTERNAL REVENUE PROCEDURES 323 

an audit with a disposition to find and assess errors against the taxpayer, 
whom he will tend to suspect of being careless, dishonest, or 
unknowledgeable. 

Likewise, the taxpayer enters the fray with his own well-established 
notions and indignation at being called for audit. He also may be resentful 
about well-pubhcized tax law preferences, such as real estate tax shel- 
ters, or some real or presumed special treatment given to more promi- 
nent personalities. His irritation is compounded by the knowledge that 
the audit experience will cost him time and perhaps money in additional 
tax assessments or the need to hire professional help. 

Further, the average taxpayer is bewildered by the complexity of the 
tax law and of the auditing procedures, and often learns only then of the 
degree of verification of items listed on his return that will be required. To 
reduce this lack of knowledge about the requirement for verification 
during audit, it is recommended that the Service annually include, 
along with the blank tax forms sent to taxpayers, information telling 
taxpayers: (1) that all supporting records should be retained for at least 
three years; (2) that an audit, if there is to be one, is not likely to 
commence for some time after the return has been filed, and (3) that 
receipt of a refund does not preclude audit. 

Study of Motivations for Compliance 

The Service regards the audit process as its primary implement to 
induce voluntary compliance with the laws requiring the filing of accurate 
returns and payment of taxes. The audit has generally been viewed by 
the Service as an "enforcement" function. It is based on the premise that 
noncompUance can be discouraged by creating the belief that any return 
may be audited. While this deterrent may operate in many cases, there 
may be other reasons that some taxpayers do or do not comply with the 
law. The law is complex, and compliance may elude even those who try 
carefully and earnestly. There may be techniques other than audit that 
would encourage greater compHance with the law. The Internal Revenue 
Service does not really claim to understand the complexities of the 
taxpayer motivations involved in compliance or noncompliance. Indeed, 
the Service's tendency to use statistics, relating to the number of returns 
audited and the resulting increased revenue, as yardsticks for the meas- 
urement of its yearly performance (as it often has done in Congressional 
hearings) raises questions about whether the Service has become too 
concerned with improved "production," rather than with the ways in 
which the audit process can best contribute to compliance with the tax 
laws. The Service has limited resources, and Congress has not to this 
time provided funds for a study that would evaluate various methods to 
measure and promote compliance with the tax laws. It is recommended 
that Congress provide funds for such a study. 



324 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 
The Settlement Process 

A settlement as described herein encompasses any sort of practical 
agreement, between a taxpayer and the Service, to terminate factual or 
legal disputes, that usually have arisen during examination of a tax 
return. The Service officials' authority to settle, and the settlement 
procedures, differ with the successive levels of examination and appeal. 

Although an examining officer is not supposed to engage in "issue 
trading" and is bound by the Service's position on questions of law, his 
fact-finding function necessarily requires him to determine such "ulti- 
mate facts" as arise, for example, in disputes over the value of property or 
the classification of income. This discretion does, in practice, give the 
examiner certain leeway to close a case by making and obtaining con- 
cessions. Many disputes are resolved at this level. 

When he cannot reach agreement with the examiner, the taxpayer may 
pursue resolution through administrative appeals. (In an office audit, he 
may first seek an immediate informal conference with the examiner's 
Group Manager, though many taxpayers eschew such a conference be- 
cause of a lack of preparation and/or representation at this point.) The 
taxpayer will receive a letter from the District Director notifying him of 
the proposed adjustments to his tax and informing him of his options. In 
general, the taxpayer may request a District Conference within 15 days 
(with further appeal to the Appellate Conference, if necessary), or he 
may bypass the District Conference and request an Appellate Conference 
within 30 days. Once the taxpayer exhausts these administrative reme- 
dies, or if he does not invoke them within 30 days of the District Director's 
letter, a statutory notice of deficiency is issued. The taxpayer then has 90 
days to assert his right to file a petition with the Tax Court. 

If the taxpayer chooses to seek a District Conference, his case will be 
reviewed by the District Conferee, an experienced examining officer. 
The District Conferee has full authority to decide factual disputes, but is 
bound by the Service's position on legal issues. Where that position is 
unclear, either the conferee or the taxpayer can seek technical advice 
from the national office. The conferee must generally decide for or against 
the taxpayer on each issue presented by the examiner's report. Like the 
examiner, he is supposed to refrain from issue-trading and is prohibited 
from deciding any "prime issues" {i.e., important unsettled questions of 
law as listed by the national office). However, the conferee's fact-finding 
and issue-defining role allows him flexibility to decide issues in a way that 
the taxpayer will find agreeable as a basis of settlement. In cases involv- 
ing less than $2,500 for a single year, the conferee is formally delegated 
the authority to entertain a settlement offer based upon his estimate of 
the overall hazards of litigation. 

If the taxpayer does not settle his case at the District Conference, he 



INTERNAL REVENUE PROCEDURES 325 

may proceed to the regional Appellate Conference. The Appellate Con- 
feree has the authority to settle any question of tax liability (with some 
exceptions), whether it involves issues of fact, law, or the hazards of 
litigation. The principal limitations on his decision-making power are that 
he must consult with the Service's Chief Counsel about prime issues, and 
must obtain the prior approval of the Chief of the Appellate Conference 
before he closes a case. If the Chief disagrees, the taxpayer is offered the 
opportunity for a further conference with the Chief. 

If the case is still unagreed after the Appellate Conference, the tax- 
payer's next level of appeal is outside the Service, in the Tax Court. After 
a petition to that court is filed, authority to settle a case prior to actual 
litigation is shared by the Appellate Conference and the Regional Coun- 
sel's office. Once the Tax Court convenes the session in which the case is 
scheduled for trial, however, the Appellate Conference relinquishes 
settlement authority to the Regional Counsel litigating the case, who 
may settle, concede, or try the case, as he deems advisable. 

Settlement Results and Their Variations 

Disputatious taxpayers seem to fare better as they progress up the 
administrative settlement ladder. In 1971, for example, District Con- 
ferees settled for approximately 42 percent of the amount originally 
assessed by the examiners, whereas Appellate Conferees settled their 
cases at about 30 percent of the initial claim. Cases settled at the Tax 
Court level resulted in a 32 percent collection rate, while in cases actually 
tried by the court the Service collected 41 percent. These disparities are 
understandable because of the differing settlement standards and strate- 
gies employed at each level of the process. 

Less understandable, though, are the significant geographical vari- 
ations in settlement results, both at the District Conference level and the 
regional Appellate Conference level. In 1971, for instance, the Cincinnati 
District sustained only 19 percent of the initial assessments while the 
Newark District sustained 84 percent. Similar variations occurred at the 
Appellate Conferee stage. Of course some part of these disparities might 
be explainable by differences in examiner expertise, or by the degree to 
which different District Directors emphasize the preliminary informal 
conference procedure, but the extent of such discrepancies raises doubt 
about whether similarly situated taxpayers have been receiving sub- 
stantially equivalent treatment in the audit and settlement process. The 
Service, to its credit, has adopted a number of procedures aimed at 
encouraging increased consultation and uniformity within and among 
districts. However, in order better to inform itself as well as the public 
about settlement variations, it is recommended that the Service should 
annually publish an analysis of a representative sample of District and 
Appellate Conference settlements. Such a study should provide more 



326 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

than cold statistics, and should develop its analysis from examination of 
individual settlements involving the most commonly controverted issues. 
It should analyze the "recovery ratio" with reference to the factors of 
(a) amounts of tax involved, (b) whether or not the taxpayers were 
represented, and (c) patterns of geographical variation. 

The recommended study ought to shed light on the reasons for the 
tendency of the Service to settle cases involving large sums of money for a 
lower percentage of the proposed assessment than cases involving rela- 
tively small sums of money. This phenomenon no doubt can be explained 
in part by the simple observation that the larger assessments will be 
resisted more tenaciously by the taxpayer, whose threat of appeal and 
suit is more credible. This tendency undoubtedly is also related to the 
tendency that the quality of the taxpayer's representation increases as 
the amount at issue increases. 

Qualitative disparities in representation are bound to occur, but the 
handicaps borne by the wholly unrepresented taxpayer, in both the audit 
and settlement processes, are more troubling. Although the Service has 
made efforts to promote objectivity on the part of its examiners and 
conferees, and has instructed them not to take advantage of the unrepre- 
sented, the unrepresented taxpayer is nevertheless at a great disad- 
vantage in the essentially adversary audit and settlement processes. 
Adversary proceedings work well where the adversaries come to the 
table with approximately equivalent skills. Clearly, the taxpayer who 
enters audit with a representative will be the better prepared to refute 
the examiner's assertions of law and fact. Conferees are drawn from the 
ranks of examiners, and the written record before a conferee is prepared 
by the examiner in the case; for a variety of reasons, the record may be 
tilted against the taxpayer. In addition, the intricacies of the settlement 
process itself will disadvantage the unrepresented taxpayer who has not 
mastered the distinctions among the 15-, 30-, and 90-day letters, or 
among the several levels of settlement authority. He is Ukely to be wholly 
unaware of the nuances of negotiation strategies and the prevailing 
institutional attitudes toward the issues in his case. The unrepresented 
taxpayer is clearly overmatched. 

This imbalance could be at least partially redressed by establishment of 
an organization to offer advice and representational assistance to some 
taxpayers. Accordingly, it is recommended that Congress establish a 
Taxpayer Assistance Center, independent of the Department of the 
Treasury, to offer advice, assistance and representation to certain classes 
of individual income taxpayers. The Center would advise and represent 
taxpayers in the preparation for and conduct of audits and appeals there- 
from. The Center should be authorized to charge a reasonable and stand- 
ard fee to taxpayers who have an ability to pay such a fee. For reasons to 
be mentioned presently, it is suggested that the assistance of the Center 



INTERNAL REVENUE PROCEDURES 327 

be made available to individual income taxpayers who have been notified 
that they will undergo examination of their returns by means of office or 
correspondence audits, in contrast to field audits. 

Concededly, it would be a difficult task for Congress to draw an appro- 
priate line between those who should have access to such assistance and 
those who should not. One approach would distinguish the predominant 
purposes of the service in its application of the audit function to various 
categories of taxpayers — whether the purpose is primarily to raise 
additional revenue or is primarily to maintain credibility in enforcement 
of the tax laws. Where the revenue motive is predominant, and returns in 
a given category are regularly expected to yield substantial additional 
revenue, it is also likely to be worthwhile from the standpoint of tax- 
payers in that category to endure ultimate audit rather than to file 
returns resolving all doubts in the government's favor. In categories 
where enforcement through deterrence is the predominant Service moti- 
vation, the nature of the returns may be such that the audit experience 
has no benefits but only burdens for the taxpayers. 

One end of the spectrum is exemplified by the large corporate tax- 
payer. Such a taxpayer will engage in numerous transactions as to which 
the facts may be unclear and the law ambiguous; the uncertainties will 
tend to be resolved in favor of the taxpayer by sophisticated tax advisors. 
Although both audit and subsequent settlement proceedings are virtually 
inevitable, those proceedings are highly cost-efficient to such taxpayers. 
The amounts saved by filing returns that invite those proceedings will be 
expected considerably to exceed the costs of enduring them. Audits of 
this kind of return are also highly cost-effective to the Service, which 
realizes its greatest collections per hour of work for such returns. Sub- 
stantial deficiencies are expected and in fact are assessed. Such returns 
seem to be audited primarily for revenue purposes rather than for en- 
forcement purposes. 

At the other extreme are non-business tax returns showing under 
$10,000 of income. Although audits of these returns are on the whole 
cost-efficient to the Service because they raise more revenue than the 
cost of performing the audits, they are not nearly as remunerative as 
other audits in higher income brackets. The audit of low income returns is 
justified by the Service's desire to maintain an enforcement "presence" at 
each income level, causing all groups to realize that they are subject to 
audit, and thereby inducing better compliance. But the taxpayer may 
view himself as the somewhat random victim of an enforcement program. 
He knows that his return is not likely to be much, if any, more inaccurate 
than that of his neighbor who was not audited. More important, the audit 
and appeal system is not cost-effective for this person. For the amounts 
involved, the cost of commercial or professional assistance in most cases 
will far exceed the potential saving in taxes. The taxpayer feels he 



328 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

shoulders the burden of audit for no benefit to himself, but merely to 
contribute to better general enforcement. 

The line between giving assistance and not giving assistance would lie 
somewhere between these extremes. Until that line is authoritatively 
drawn in some other fashion, a practical division can be made by viewing 
returns subjected to field audits as generally being examined primarily to 
raise revenue, and viewing office and correspondence audits as being 
conducted primarily for enforcement purposes. Under the approach out- 
lined, the latter category would be considered for assistance. 



INTERNAL REVENUE PROCEDURES 329 

CHAPTER 2 — COLLECTION OF DELINQUENT TAXES 

Congress has conferred drastic powers upon the Internal Revenue 
Service forcibly to collect taxes from delinquent taxpayers. By law, the 
IRS is authorized without an adjudicatory hearing, summarily to place a 
lien on, to levy upon, or to seize and sell any or all property and rights to 
property belonging to a taxpayer with a tax delinquency. 

At the same time Congress has provided little guidance on how the IRS 
should use its collection powers. Nor has there been much judicial direc- 
tion supplied by the courts. The result is a large body of discretionary 
authority given to the IRS to collect taxes forcibly. Inevitably, such 
discretionary power is not uniformly exercised and is open to adminis- 
trative abuse. As a result, the exercise of the formidable collection 
powers at times poses troublesome conflicts between the right of the 
government to exact taxes and the property rights of the individual 
citizen. 

The process leading up to forcible collection commences in the Service 
Centers in the course of routine handling of taxpayer returns. Although 
the overwhelming majority of citizens pay their taxes on time and in full, 
the IRS each year has an inventory of several million cases in which 
taxpayers either failed properly to assess their tax or to pay any of it or all 
of it in full. It is usually at the Service Center that tax error or payment 
omission is first detected, either through mathematical verification or 
manual sorting of returns. 

In 1973, 77.7 million individual tax returns were filed. Slightly less than 
3 million of them showed an unpaid balance due. Another 1.6 million 
revealed a tax deficiency after the Service Center's mathematical check. 
In all, 4.6 million individual returns indicated that taxpayer contact was 
necessary to collect the missing revenues. 

Once detected, the errors or omissions trigger a series of Service 
Center computer-printed notices to taxpayers whose accounts show a 
balance due. As many as four such notices may be mailed to a taxpayer. 

Notice and Demand 

The initial notice advises the taxpayer of the amount alleged to be due, 
plus interest and penalties if any, and states that he can square his 
account within a specified number of days. If there is no response from the 
taxpayer, a second notice is sent within five weeks, reminding him of the 
tax due and advising that he "should pay (the tax) within 10 days of the 
date of this letter. ..." If there is still no response, a third notice is sent in 
three more weeks. If there is yet silence on the part of the taxpayer, a 
so-called "Final Notice Before Seizure" is sent. 

It is this Final Notice Before Seizure which, by formal notice of de- 
linquency and demand for payment thereof, lays the legal groundwork for 



330 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

subsequent imposition of the Service's potent summary powers of col- 
lection. The present practices of the Service in regard to this notice create 
the possibility of unfairness and unnecessary irritation for the taxpayer. 

No forcible collection action should be initiated against a delinquent 
taxpayer without actual notice that it may occur. In view of the uncer- 
tainties of mail delivery and the treatment commonly given to com- 
puter-printed communications, the Service should take reasonable 
precaution to assure that the taxpayer actually has received such notice 
and appreciated its significance. To this end, it is recommended that the 
Service experiment with sending its "Final Notice Before Seizure" to the 
taxpayer by certified mail, return receipt requested, before any forcible 
collection action is initiated. 

Although the Final Notice advises the taxpayer that salary and wages 
will be levied and any assets, income, or other property may be seized "10 
days after the date of this letter," in practice it is usually more than two 
months before a delinquent taxpayer hears anything more from the IRS. 
This delay in carrying out a threat raises problems for the Service in 
future dealings with a delinquent taxpayer. The failure to exercise levy or 
seizure in the time specified may tend to create indifference, even if the 
notice is later reinforced by telephone or through personal contact. After 
passage of the eleventh day, the taxpayer may assume that the time for 
levy or seizure has passed and consequently be stunned when it does 
occur as late as two to four months after the Final Notice. When such 
summary action does indeed occur, the taxpayer predictably may react 
with anger, surprise, and a feeling that the Service is treating him 
unjustly. Such potential for aggravation of taxpayers raises serious 
impUcations for a tax system that relies heavily on voluntary compHance. 

To offset the potential for such negative taxpayer reactions, it is 
recommended that the "Final Notice Before Seizure" be revised to 
indicate that forcible collection action may be taken at any time after the 
expiration of the 10-day period following the date of the notice, and to 
emphasize that this may be done without further notice to the taxpayer. 

If the computer-printed notices do not produce payment, a Service 
Center automatically will issue a Taxpayer Delinquent Account (TDA) 
for any deficiency above a specified minimum dollar amount set by the 
Service. The TDA is forwarded to the District Office, where it is screened 
by the Office Branch, which attempts to collect the tax from the taxpayer 
through office interviews, correspondence or limited field contact. Three 
out of four delinquent taxpayer accounts are settled in the District Office 
without application of any of the Service's formidable forcible collection 
powers. 

In principle, no Final Notice Before Seizure should be sent to a tax- 
payer unless it is clear that the circumstances will warrant the application 
of levy or seizure power. Since these notices are computer-generated by 



INTERNAL REVENUE PROCEDURES 331 

Service Centers without benefit of the sort of investigation of a taxpay- 
er's circumstances that can be undertaken by the District Office, many 
Final Notices in response to which the taxpayer does not promptly pay 
his account will in fact not be followed by a decision to seize the taxpayer's 
property. Since decisions to seize property are not automated, but made 
by Service personnel on a case-by-case basis, the timing of the decisions is 
far from uniform, nor is it as prompt as the Final Notice Before Seizure 
implies it will be, i.e. , 10 days after. The longer the interval between the 
mailing of the Final Notice and the initiation of forcible action to collect 
the tax, the greater the possibility of surprise to the taxpayer and 
resentment by him when forcible action is actually taken. The Service 
should treat any final Notice as "stale" if, within some period (such as 120 
days) after it is received by the taxpayer, no levy or seizure action has 
been taken to collect the tax due. Thus, it is recommended that the 
Internal Revenue Service arrange for the District Office to provide 
additional actual notification to the taxpayer that levy or seizure will 
follow 10 days thereafter in all cases when no such action has been initi- 
ated for an unusually long interval, such as 120 days, after the delivery of 
a Final Notice Before Seizure. Such additional notification might be at- 
tempted by telephone or personal contact and failing that by certified 
mail, return receipt requested. 

Liens 

In legal theory under the tax code, a lien in favor of the government 
arises against all taxpayer property and rights to property, whether real 
or personal, the moment the Internal Revenue Service assesses any tax 
liability against a taxpayer. The tax code also seems to provide, still as a 
matter of theory, that the lien attaches the moment, following a demand 
for payment of the Service-assessed tax liability, when the taxpayer 
"neglects or refuses to pay the same." For any practical purpose, it 
appears that a lien, in the amount of the assessed tax liability, only takes 
priority over the rights of third parties when the Service files for official 
public record a notice of the lien. When notice of a lien is filed, generally 
speaking in places prescribed by state law, the lien becomes an en- 
cumbrance on the taxpayer's property which very substantially reduces 
his ability to make legally effective dispositions thereof. The intended 
effect of filing a notice of lien is to assure that taxpayer property will be 
available, either from the taxpayer or from a third party transferee, to 
satisfy the taxpayer's tax liability. However, serious issues are pre- 
sented which relate to the timing of lien notice and the duration of liens. 

The Service intends that notice of a lien should be filed for the record 
only after reasonable efforts have been made to contact the taxpayer in 
person to give him a chance to pay what he owes. Even then it should be 
filed only if it appears that collection of the delinquent tax might be 



332 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

jeopardized by failure to record the lien. When notice of a lien is filed, the 
public can become aware of the taxpayer's difficulties, and he may, as a 
result, not only become disabled from raising funds to pay the tax liabili- 
ty, thereby actually impeding collection, but also suffer unintended and 
unnecessary personal disadvantage. Service guidelines recognize this 
risk but leave to the almost unfettered discretion of the Revenue Officer 
the difficult decision as to whether and when to file notice of a lien. 
Understandably then, there may be wide and inequitable disparity in the 
practices of Revenue Officers in filing lien notices. Accordingly, to assure 
greater uniformity in IRS lien notice filing practice and to minimize 
unnecessary adverse effects on taxpayers, it is recommended that the 
Internal Revenue Service provide specific guidance to make the de- 
termination as to whether and when to file notices of liens. 

As a matter of legal theory under the tax code, a tax lien continues until 
the tax liability has been satisfied or has become legally unenforceable; 
the tax code authorizes release of the lien then or when payment of the tax 
liability has been secured by a bond. The practical effects of a lien of which 
notice has been filed in a public record are likely to persist until a 
certificate of release of the Uen has been filed wherever the notice of lien 
was filed. However, there is no assurance that this will take place. Since 
the Service has no legal obligation, procedure, or practice to notify a 
taxpayer when a notice of lien is filed, he may not know it and may, 
therefore, not seek a formal release certificate — or, if he does, may not 
know where to file it. Furthermore, nothing mandates the Service to 
initiate release of a lien, to notify the taxpayer if and when it does so, or to 
file a certificate of discharge wherever notice of a lien was filed. Nor has 
the Service adopted a regular and reliable practice of doing any of these 
things. There can be no possible justification for a taxpayer to have to 
suffer disadvantage, embarrassment, or other inconvenience due to the 
persistence of a shadow on his clear interest in property created by a 
recorded lien that has not been discharged on the record. Accordingly, ii 
is recommended that the Internal Revenue Service adopt procedures 
that will notify a taxpayer whenever notice of a lien is filed against his 
property in any public record and that will provide, without apphcation 
by the taxpayer, for the recording of a certificate of discharge of any such 
lien, upon its release, wherever notice of the lien was filed. 

Levies 

A more powerful instrument available to the Collection Division of the 
IRS to collect delinquent taxes is its levy authority.* Although it is 
imposed in the cases of only a small number of the taxpayers who have 



*In the tax code, the term "levy" is used to include both levy and seizure; in the lexicon of the IRS levy is generally 
distinguished from seizure. The distinction made by the IRS is followed herein. 



INTERNAL REVENUE PROCEDURES 333 

failed to meet their tax obligations, those with regard to whom it is 
imposed frequently suffer severely. In the fiscal year ending June 30, 
1974, 582,701 notices of levy were made. 

The levy procedure is applied to third parties, such as employers, stock 
brokers, insurance agents, and bankers holding any asset — usually 
liquid — owned by the taxpayer. Levies attach to earned salaries and 
wages, bank accounts, investment accounts, and all accounts receivable. 
The third-party served with notice of a tax levy is obligated to surrender 
the property on demand. If he refuses, he is held personally liable for the 
tax due, interest charges, costs, and penalties, unless he has a reasonable 
cause for his refusal. 

A court judgment or court order is not required before the imposition of 
a levy, nor is notification of the taxpayer required, beyond the 
computer-printed Final Notice Before Seizure, except in cases where his 
salary is to be garnished. 

As in most summary actions, the Revenue Officer has enormous dis- 
cretion in deciding to impose a levy. The Service instructs only that his 
action be "judicious" in the application of levy. But judiciousness is 
interpreted differently by different members of the IRS and in some 
cases in such a manner as to preclude the delinquent taxpayer from 
paying voluntarily. The Service suggests but does not require that the 
officer contact the taxpayer to advise him of the possible consequences. 
One of the few restrictions the officer faces in deciding when to exercise 
levy is a requirement that he consider the impact his action may have in 
what the Service refers to as "significant" cases, i.e., those which might 
cause embarrassment to the Service by adversely affecting large num- 
bers of innocent third parties whose circumstances would be disrupted by 
levy action. Examples would be levies in case of a hospital, a newspaper, 
or a large, "viable" business. Avoiding levy in such cases, while perhaps 
saving the IRS potential embarrassment, does not constitute even- 
handed treatment of all taxpayers in similar tax-delinquent situations. 
Accordingly, it is recommended that the Internal Revenue Service 
establish guidelines that will assure judicious and even-handed applica- 
tion of the levy power and that will specify the circumstances constituting 
a reasonable opportunity for the taxpayer to pay his tax liability to avoid 
levy on his property. 

The Service directs its Revenue Officers that levies should not be used 
in cases where undue hardship for an individual taxpayer would result. 
While the Service thus expects a Revenue Officer to consider the impact 
of his action, it provides no workable definition of what constitutes 
hardship beyond archaic formulas laid down in pre-inflation times. Lack 
of direction has left individual Revenue Officers free to make such 
determinations on a widely varying and arbitrary basis. It is recom- 
mended that the Internal Revenue Service establish more specific 



334 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

criteria and procedures to make application of the undue hardship 
principle more uniform. There should be criteria for common necessaries 
of life, including food, housing, clothing, and transportation, and 
provision of clear advice to the taxpayer as to what information and 
documentation are needed for the Service to make a determination of 
undue hardship. In addition, the Service should allow a minimum 
subsistence exemption from the initial levy on the salary or wages of a 
taxpayer being subject to levy for the first time. 

Seizure and Sale 

The power of the Internal Revenue Service to seize a taxpayer's 
property for sale is virtually absolute. Seizure may be made to collect 
taxes, interest, and additions to the tax in the form of penalties. 

There are very few seizures of property in comparison with the number 
of Hen notice filings or levies on wages and salaries and other liquid assets. 
Seizures are imposed in case of well under 1 percent of taxpayer de- 
linquent accounts; they are ordinarily applied to tangible property in the 
taxpayer's possession. The exercise of seizure power has been delegated 
to journeymen Revenue Officers. There is no requirement for the Reve- 
nue Officer to give specific prior notice of seizure to the taxpayer beyond 
the general warning contained in the Service Center's computer-printed 
Final Notice Before Seizure. There is no requirement that the Revenue 
Officer seek approval of his superior before he seizes property, although 
he often does so in practice. There is no requirement that seizure of an 
individual taxpayer's property be made on a last-resort-basis as there is 
in case of delinquent business taxpayers. Consequently, Revenue Of- 
ficers have broad and essentially unguided discretion in deciding to 
exercise this confiscatory pow^r. 

From the time property is seized, the Service becomes responsible for 
the seized property until it is sold and may incur expenses, such as 
insurance or guards, to protect it. The proceeds of sale of seized property 
are applied first, to pay the expenses of seizure, protection, and sale of the 
property, next, to pay any specific unpaid Federal tax liability on the 
property itself, and finally, to pay the delinquent tax of the taxpayer on 
account of which the property was seized and sold. 

Before a sale, the Revenue Officer must, subject to his Group Manag- 
er's approval, fix a minimum sale price for the seized property. This is a 
difficult decision and an important one for both the Service and the 
taxpayer. If the highest bid at the sale is less than the minimum price, the 
property must be bought by the government at the minimum price, which 
thus becomes the sale proceeds to be applied as explained above. Except 
in case of property consisting of listed securities, present IRS policy 
governing the fixing of minimum sale price is confusing and hard to apply. 
Its aim is to protect both the taxpayer and the government. However, in 



INTERNAL REVENUE PROCEDURES 335 

many cases, it has failed to do one or the other, or both. In any case where 
the minimum sale price is set too high and no bidder offers as much, the 
government may end up crediting the taxpayer's delinquent account with 
more than it can get from resale of the property. Conversely, if the 
minimum sale price is set too low and no bidder offers as much, the 
taxpayer may see his property purchased by the government and resold 
to a third party at much less than it is really worth, with his tax liability 
reduced by much less than it should have been, given the value of the 
property. In the first instance, the government is the loser and the 
taxpayer gains. In the second case, both the government and the tax- 
payer fail to obtain adequate benefit from ultimate sale of the property. 

As might be expected, the present Service guidelines, confusing as 
they are, lean strongly toward protecting the government. In spite of 
this, there have been many cases when the proceeds of sales of seized 
property have not even been sufficient to pay the Service's expenses of 
seizure, protection, and sale of the property. In any such case, the 
taxpayer's situation is worsened, with little or no benefit to the gov- 
ernment, as a result of the Service's action. 

Before a decision to seize property of a delinquent taxpayer is made, 
and before sale of seized property is carried out, it seems clear that the 
Service should be certain that the consequence of its actions will be a 
reduction of the taxpayer's delinquency by an amount that is fair both to 
the taxpayer and to the government. There should never be a case in 
which the proceeds of sale do not even cover the Service's expenses of 
seizure, protection, and sale, including properly accounted for salary and 
overhead costs which are now not part of the calculus at all. The Service's 
Internal Audit Division has criticized many seizures because they did not 
meet these standards and thereby created the appearance of taxpayer 
harassment. 

The risk of imprudent and unfair seizures and sales is especially great 
when property to be seized is subject to an encumbrance with priority 
over the Federal tax lien for the delinquency involved. This makes it more 
difficult to fix a fair minimum sale price and to estimate what the 
character of bidding at the sale will be. In spite of these difficulties, it 
seems clear that the Service should never seize or sell a taxpayer's 
residual (after allowance for any prior encumbrance) interest in property, 
or "equity [in property] under the lien" as the Service calls it, unless the 
proceeds of sale will substantially exceed the Service's costs and 
expenditures. 

Because the confiscation of any taxpayer's property can have drastic 
impact and unnecessarily adverse consequences for the taxpayer, it is 
vital that the decision to seize property be made with a view to assuring 
that the taxpayer is injured thereby as little as possible, consistent with 
the need to collect delinquent taxes. To this end, it is recommended that 



336 ADMINISTRATIVE CONFERENCE OF THE UNITED STATES 

the Internal Revenue Service require that Group Managers, rather than 
Revenue Officers, make the decision to seize. Furthermore, the Service 
should require that as a condition to making the decision to seize, the 
Group Manager should determine, based on adequate evidence, that the 
proceeds of a sale of the seized property will substantially exceed the 
anticipated expenses of taking possession of, protecting, and selHng the 
property. And finally, after seizure, the Service's procedures should call 
for returning promptly to the taxpayer any item of property as to which a 
determination can reasonably be made that the minimum sale price is 
unlikely to exceed such expenses. 

A serious obstacle to formulating Service guidelines for the making of 
decisions about when to exercise the power of seizure and sale to collect 
delinquent tax accounts is the absence of adequate, systematic data about 
the Service's practices and their consequences. The Service has records 
of the number of seizures of property which it makes. However, it has no 
overall records of how many sales ensue, of the gross proceeds of sales, of 
its expenses of seizure, protection, and sale of property, of the amount of 
funds obtained from sales applied to reduction of tax liabilities, of the 
personnel and other overhead costs incurred in seizure and sale pro- 
ceedings, of the number of or reasons for releases back to taxpayers of 
seized property. Ad hoc selective studies by the Service's Internal Audit 
Division have identified serious deficiencies in achieving the Service's 
own existing policy objectives in relation to seizures and sales. Thus, it is 
recommended that in order better to evaluate and execute its policies 
and procedures, the Internal Revenue Service should, at least from time 
to time, collect, tabulate, and analyze data relative to all the matters 
identified above. 

Jeopardy and Termination Assessments 

Of all the formidable powers at the disposal of the IRS to force the 
payment of an individual's delinquent taxes, perhaps none are more harsh 
than jeopardy and termination assessments. 

Under normal circumstances, an additional tax asserted by the IRS, 
either as a result of return processing by the Service Center or as a result 
of audit, does not have to be paid by the taxpayer until after he has been 
issued a Statutory Notice of Deficiency.* For 90 days thereafter, the 
taxpayer has the right, prior to payment of the tax, to contest the 
deficiency assessment in the Tax Court. During this period, the Service 
may not take any formal action to collect the tax. 

Under certain exceptional circumstances, when collection of a tax 
deficiency appears to be in jeopardy, the IRS is empowered by the tax 



♦Additional tax due on account of purely mathematical error in the return may be assessed and collected without 
issuance of a Statutory Notice. 



INTERNAL REVENUE PROCEDURES 337 

code to collect forcibly unpaid taxes through jeopardy or termination 
assessment procedures, followed by seizure and sale, without any prior 
notice to the taxpayer. Although these procedures are applied to few tax